Incentivising responsible consumption in a 'Buy Now, Pay Later' world

I was 22 when I took my first loan - to buy an expensive smartphone. It took me six months to pay it back; six months of “sacrifice”. The worst part is, I ended up damaging the phone in less than a year. I learned a lot about living within my means after that. Especially about how to responsibly avail loans for conscious consumption.

A few days ago, a WhatsApp forward proclaimed Marry Now Pay Later. There are multiple variations of the “consume now pay later” construct: some responsible, but largely trivial.

As someone one who has gone through financial pain early in my career, two responsible trends that are making waves are Care Now Pay Later and Save Now Pay Later.

Care Now Pay Later

India has one of the largest populations without health insurance. A 2018 World Health Organisation (WHO) study estimated that healthcare expenses push more than 5 crore people below the poverty line each year. Despite the strides made by Ayushman Bharat in coverage, practical concerns regarding awareness and access mean that a large proportion of patients pay out-of-pocket to avail of private healthcare.

Takeaway 1: Increasing insurance coverage is the only real way to protect income levels. However, this is not a short-term solution. Insurance carries a negative perception of being an unwanted expense. Anecdotal evidence suggests that blue-collar employees with access to corporate insurance prefer substituting it with extra cash in hand. The 3A model of Awareness, Access and Affordability is key to increasing insurance penetration.

Takeaway 2: Out-of-pocket expenses will be around for a long time. Not every health expense can be covered even after universal insurance kicks in. But an unexpected health expense should not be reason enough for a household to be selling the family gold. Point-of-care loans at low-interest rates solve the dual problem of access and affordability. As a result, family members of patients can protect their assets while accessing high-quality healthcare.

Takeaway 3: Care now pay later models need to encourage fiscal responsibility. A caregiver will always demand the best for their patient. On the other hand, the CNPL player is ultimately providing a loan and has to recover it to build a sustainable business. Risk underwriting becomes critical to strike the right balance between sensitivity and fiscal responsibility.

Ultimately, there is no substitute for financial planning.

Save Now Pay Later

With the rise of e-commerce, shopping has become more convenient and accessible. However, it has also led to an increase in impulse buying enabled by credit-based purchases. This trend is contrary to the traditional “savings” mindset prevalent in middle- class households.

Merging the best of two worlds, Save Now Pay Later (SNPL) models are gaining in popularity in India and worldwide. This model brings saving and spending under one platform and provides a debt-free alternative to making high-value purchases.

SNPL platforms enable customers to make goal-based savings over a specified period. Once the target is achieved, the customer then redeems the saved amount to make the purchase. This new model is especially appealing to customers who are conscious about their spending and want to live within their means.

Our data suggest that around 30 per cent of customers who have used lending options before are open to trying SNPL, making it a valid use case.

WealthTech startups are leveraging the power of the India stack to transform how young Indians earn, save, invest and consume. Personal finance has become one of the most popular genres of short-form content across platforms. Despite fads such as crypto and NFTs gaining significant traction, the bulk of the information being disseminated through social media encourages responsibility, and there is much to look forward to for the sector.

(The author is Partner at Redseer Strategy Consultants)