Sequoia Capital-backed consumer lending startup MoneyTap said on February 10 that it plans to provide short term loans under the Buy Now Pay Later model, a popular but risky scheme aimed at younger consumers.
MoneyTap is planning to provide loans at 0% EMI and low rates to attract consumers. “The focus is both on customer affordability and becoming a sales driver for our business partner merchants. We look to be equally focussed on merchant-specific EMI distribution solutions which are available on mobile phones,” said Anuj Kacker, co-founder, MoneyTap.
A ‘Buy-Now-Pay-Later’ (BNPL) scheme is a personal loan given by a fintech firm to consumers. There are fintech lending firms such as ePayLater, LazyPay, Simpl, etc. that allow consumers to pay later while shopping. All the purchases during a billing-cycle get added up, for which you can pay later. A consumer can make small-value transactions using this scheme, ranging from Rs 100 to Rs 5,000. The purchase can even go up to Rs 30,000 based on the profile of the consumer.
This payment option is available on e-commerce websites such as Flipkart, Bigbasket, food delivery apps Zomato and Swiggy, and to book trips on Goibibo and Cleartrip.
The BNPL mode of lending is extremely popular but increasingly risky as well. Personal loans from banks tend to be cheaper than BNPL from an app, and the interest rates if you fail to repay on time are heavy, Moneycontrol reported on February 17, 2020.
Some firms “start (interest) at Rs 11.8 for a bill amount of less than Rs 100 to Rs 118 for a bill amount more than Rs 500 per billing cycle. It also charges a late penalty of up to Rs 250. LazyPay calculates late fees at Rs 10 per day. It is capped at 30 percent of the total due amount,” the report said.
Further, interest is charged on the outstanding amount. For instance, LazyPay charges 26 percent as the annual percentage rate and is calculated on a per day basis until you repay. ePayLater charges 3 percent a month (36 percent annually) on the total due amount.
MoneyTap has its own loan book of over Rs 1,000 crore, and got an NBFC license from the Reserve Bank of India in 2019.
It also plans to launch an EMI card for loans, backed by special offers, and a 0% EMI Pay Later Card that will allow users to get an interest free period of 30 days. After 30 days, the pay later card allows the users the option of either paying the full amount or paying partially and converting the rest into EMIs.Globally, payments firm Stripe - among the hottest fintech startups in the world has also been dabbling in BNPL, indicating its rising attractiveness in the US. Although Stripe is a business-to-business firm and its customers are businesses who it helps with processing payments, having BNPL as an additional service helps its clients who want to offer such a scheme.