In cases of non-payment, companies send automated call reminders and emails to users, asking them to pay up. Delinquencies however have been low
Micro credits have been a part of our lives since time immemorial.
Remember those “credit accounts” one had with the chailwala or the paanwala? Now the online world is adopting the same – buy now, pay later – the new trick in the e-commerce game to attract more traffic and transactions from Indian users.
The early adopters are in the food-tech and online shopping sectors such as Flipkart and Zomato, and the micro credit system is quickly gaining popularity with other online based transactions also.
IRCTC, the Indian Railways ticket-booking system, has also tied up with a service provider to let users book the tickets instantly, but pay at a later date.
There are three such prominent service providers operating in India – Simpl, ePaylater, and Lazypay by PayU.
They are offering customers the option to ‘buy now and pay later’ option on online fashion portals, ticket booking websites, food ordering portals, aiming to migrate all cash transactions to digital.
“Ours is a cash-driven economy, accounting for at least 68 percent. In the US, it is at 9 percent. On the other hand, US has over 48 percent population using credit cards, against just 3 crore credit cards in India. To get people to move away from cash, you need to give them a fitting alternative which will be frictionless,” says Aurko Bhattacharya, co founder of ePayLater.
The company handles about 2,500 transactions a day. "It also takes care of the trust factor. The user can buy and experience their purchase before paying for it," adds Aurko.
Nitya Sharma, co-founder of another such service provider, Simpl, feels that to create a digital economy, it is important to create utility value propositions for users to move away from cash. A few merchant partners of Simpl, such as Faasos, also offer the pay-later service as a loyalty customer reward.
For the e-commerce companies, it is a good proposition to arrest the loss of sale opportunity due to transaction failures that account for at least 30 percent of their traffic.
If we take in other interferences into account, the number of people who intend to buy a product but abandon the cart just before payment stands at about 70 percent.
“As PayU we have been in the payments industry for long. The need for a service like LazyPay came about because merchants wanted to do away with payment drops. For consumers it is a frictionless transaction, eliminating the need for repeated OTPs, CVV numbers or net banking details,” Pallav Jain – Head, Consumer Business, PayU India said.
According to Jain, the online portals lost USD 4.4 billion in revenue in 2015, about 30 percent of which was due to transaction failure at the payment page.
LazyPay, which went live in March, has tie ups with a host of companies such as Box8, Zomato, Jazz Cinemas, Netmeds, PVR, Innerchef, D Vois, Abhibus, Salad Days, Faasos, and FreshMenu.
The company has over 150,000 users, and handles about 100,000 transactions a month, with an average ticket size of Rs 600-650.
PayU will invest USD 50 million in LazyPay over the next two years with an aim to reach out to 10 million users.
The pay later service also works as a customer acquisition tool for the online portals.
A quick and convenient payment mode ensures the customers come back for another purchase. According to Sharma of Simpl, their merchant partners have seen their conversion rate increase by 50 to 80 percent.
Simpl has partnerships with over 30 merchants, including BookMyShow, Faaso's, FreshMenu, Box8 and Zipgo.
This is how it works: The service providers tie up with online portals to add a pay later option.First-time users of the service will have to create a profile with them, feed in personal identity details such as Aadhaar number, phone number, and email id.
A backend algorithm then reads through the user’s transaction history, value of transactions, browsing pattern, products of interest, and so on, to determine the user’s eligibility.
Post this it’s a one-click transaction if you choose to pay later on partner ecommerce websites.
The user can then settle a cumulative bill in a stipulated cycle, typically 14 days, through a digital payment mode.
It’s a micro credit system that attracts a late pay penalty, like any other credit system. For late payments, Simpl levies a penalty of Rs 50-100, while ePayLater charges a flat 3% per month, on a daily accrual basis. LazyPay also charges Rs 10 per day for non-payment.
However, these companies are consciously steering away from an aggressive recollection approach and are rather adopting automated, non-intrusive reminder system.
“We don’t see late fee as a revenue stream. We waive off the late fee for first three transactions anyway. We don’t operate with the mindset that the user is trying to cheat us. Sometimes we waive off the late fee at user’s request also.
What if, the user doesn’t pay at all?
That’s the biggest risk this service entails, says Jain of PayU.
The companies take in account about 0.5% t0 1.5% of delinquency rate on an average.
In case of a transaction turning a non-performing asset, the companies also have a legal backup since the service is based on a contract with the user.
But till now, none of the companies have taken the legal route to settle non-payment of bill.
Sharma of Simpl adds that a legal route makes sense for a high value transaction. “We rather focus on weeding out such users,” says Sharma.
Simpl however also sends automated reminders in a baritoned voice asking users to pay-up or face legal action.
However, some like Bhattacharya of ePayLater admit that there is little companies can do as it is not a legal contract with a collateral for users to pay up. "We have not seen high delinquencies. However we can ask merchants to bar such users," he tells Moneycontrol.
The companies safeguard against such defaults by using technology to filter users.
“LazyPay is engineered with proactive analytics and machine learning algorithms. PayU processes three million transactions every day. Each transaction generates 15 direct variables, which helps to draw up a profile of the customer and come up with a ‘trust score’,” Jain explains.
Simpl and ePayLater also have similar algorithms in place that use machine learning and advanced analytics to capture a user’s credit-worthiness, called Trust score.
The most prominent users of this facility are the customers who are categorised as ‘online first’. The service is opened up to selective customers, with high transaction frequency, while the amount of micro credit extended to a user also depends on the rating.
While LazyPay is backed by one of the biggest payments solutions companies globally – PayU, Mumbai-based Simpl has raised seed funding from Green Visor Capital and IA Capital. ePaylater has raised USD 2 million from multiple email@example.com