Turning to 'Buy-Now-Pay-Later' Models: E-commerce Giants Strengthen Financial Offerings To Operate In the 'New Normal' From payments to lending to insurance, e-commerce is providing financial services to support its core business by partnering with banks, NBFCs and other financial institutions

The ongoing crisis and economic uncertainty following the COVID-19 pandemic has pushed e-commerce companies to scout new opportunities and offer unique financial services to customers. In a move that could disrupt the consumer lending segment, e-commerce giants have forayed into the financial services space in the recent years. From payments to lending to insurance, e-commerce is providing financial services to support its core business by partnering with banks, NBFCs and other financial institutions.

We have seen how Amazon has been experimenting with lending in India. In June 2018, the company launched a marketplace for lenders and sellers to obtain loans at very competitive rates. For the same, Amazon on-boarded five lenders to the platform—Capital First, Bank of Baroda, Aditya Birla Finance, Yes Bank and their portfolio company Capital Float. Similarly, in April 2019 Amazon announced its first lending API integration with lending platform FlexiLoans. With this partnership, Amazon allowed sellers in India to get their SMB loan set up directly on their Amazon Seller Dashboard. FlexiLoans offers underbanked Amazon sellers funding and collateral-free loans and processed 10,000 loans between 2016 and 2019.

What will be interesting to see now is how these players shift their focus to consumer loans. The COVID-19 crisis has changed the way Indians buy and has significantly influenced a shift in consumer behavior, accelerating e-commerce adoption and encouraging digital buying. In a report by Deloitte, it is mentioned that "though e-commerce companies offered a wide variety of payment options including internet banking, credit and debit card, 60-70 per cent of the payments were made using the cash on delivery option in India". However, this quickly changed during the COVID-19 crisis as companies shifted towards contactless deliveries, to ensure safety of delivery partners as well as consumers. As a result, willingly or forcefully people resorted to online purchases of groceries, medicines, and other essential goods. To support these purchases, e-commerce giants are coming up with new and innovative credit options for their customers.

The Emerging Buy-Now-Pay-Later Model

Many e-commerce companies have also started adopting the 'buy-now-pay-later' models to boost sales on their platforms. For instance, Amazon recently announced "Amazon Pay Later', a new credit service in India that allows shoppers on its platform to get an instant credit that can be used to buy products as well as pay bills. While credit cards were the first ones to provide pay-later facilities online, it is still not widely used, since most Indian consumers have not adopted credit cards for day-to-day purchases and use it only for emergencies or for big purchases.

Consumers look for financial services that offer ease and affordability, but often because of high-interest rates, fees, and low transparency on charges levied on plastic money, people shy away from using it, sometimes it's just not the right fit for those who are new to credit. However, "buy now-pay later' model works in a similar way but with low or no interest rates. This credit model finances smaller ticket items and allows consumers to buy the essentials and pay at a later date.

Technology innovations are also playing an important role towards nurturing this differentiated value proposition for e-commerce companies. Thanks to artificial intelligence and machine learning models that are reducing the risk of fraud and defaults for financial institutions, e-commerce companies now have a deeper understanding of the credit profile of the buyer. Thus, they can securely offer financial services on their platforms and take the consumer experience to a completely new level. The success story will also have ripple effects across other industries. Recently, India's largest automobile manufacturer announced "buy-now-pay-later' schemes to help customers buy their favorite cars. As we have more success stories from different industries, we can certainly expect a positive behavioral change that will usher a new era of consumers' glory.