As we stand on the threshold of a New Year, it is time to look ahead and see which trends in 2022 may have a significant impact on your personal finances. Here are three that you may want to watch out for.
BNPL: Buy now pay later (BNPL) is the latest buzzword in financial services. Essentially it means you can purchase what you want today, but pay for the purchase in defined interest-free instalments. It began with e-commerce platforms, retail outlets and fintechs offering this benefit to customers. Banks, too, stepped in with similar features on their debit cards.
BNPL basically offers interest-free payback instalments spread across 3-6 months. While there is a KYC requirement, it does not need prior credit history or a credit score. The facility is approved within a few minutes or hours.
The objective is to reach spenders who may not qualify for credit cards and have an appetite for relatively larger sized spends.
For instance, Slice offers a three-month repayment window at no extra cost. This challenges regular credit cards that offer just a 50-day credit period. Unlike credit cards, there are no annual fees and the credit limit can go as high as Rs 10 lakh without a formal credit score. There are other facilities such as rewards and splitting of bills. Targeted at young earners, this card aims at approvals within a few minutes and delivery within a couple of days.
According to Amit Das, co-founder and chief executive officer of Think360.ai, “BNPL is an old concept being repackaged with cards such as Slice. Now, as even big banks are interested in capitalizing on this, their current systems and processes will need to get altered to support this. So far, data suggests that NPAs are roughly at the same level as for the credit card segment of the banking system, which could mean that the present customers are a segment who already are familiar with credit card usage If used wisely, it can help manage cash and stretch liquidity, which in turn can attract customers.”
Das mentioned the need for access to better information and education around the concept for the end-customer to be able to make informed choices.
BNPL is really a double-edged sword that can help you manage liquidity, but may end up building a false sense of affordability. If you are using it to stretch your liquidity or cash, it means you must repay on time and buy only what you can afford in that time. The credit limit on such cards may be enhanced beyond your affordability and may lead you astray. If you start overspending with BNPL, your salary can no longer cover the instalments. Going beyond the interest-free payment period will lead to charges in excess of 30 percent annualized.
ETFs: Retail investments through exchange traded funds (ETFs) have risen sharply during the pandemic. The total assets under management in this category increased from Rs 230,000 crore at the end of November 2020 to Rs 364,000 crore in November 2021. This is 58 percent growth in a year as compared to 29 percent growth in overall open-ended mutual fund assets. Currently, 17 schemes are from the debt category with approximate assets under management of Rs 50,000 crore.
ETFs are convenient and low-cost options for individual investors, particularly for those comfortable with digital platforms.
According to Swarup Mohanty chief executive officer, Mirae Asset Investment Managers (India), “The popularity and growth in this segment is a natural progression for any equity market and we are seeing it play out now in India, too. There is limited scope for innovation in active schemes as the regulator guided categories are already populated. Indian asset managers and investors can benefit from the experience of theme-based and smart-beta ETFs overseas to find the most relevant solutions suited for the domestic market.”
Many more rule-based ETFs, both from domestic and overseas markets, are waiting for approvals from SEBI. You will have to tread carefully and pick the themes that you understand better.
Neobanks: Neobanks or digital banks are emerging as key components in the Indian personal finance space. Unlike traditional banks that offer you a more in-person experience, neobanks are all about convenience and moving all your money management tasks to your banking app. Be it in person-to-person transfers, budgeting tools or instant investment options, payment reminders, digital receipts, neobanks offer it all and at a lower cost to the customer. A neobank usually is a fintech that has ties with a traditional bank to offer these services to their customers. Along with ease of use and convenience, the focus is on providing customized experience through the use of AI based technologies.
While there is an appeal for quick banking services, neobanks are still far from offering a comprehensive bouquet. However, for the younger generation, the speed of transactions, lower costs, plus an intuitive digital experience, maybe enough for this trend to see a fast pick-up.
These personal finance trends are bound to impact you or the younger members of your family in the coming months and years. Now, 2022 will be a key period to watch out for the direction and pace these trends take.