How Visa is eating the buy now - pay later business? 🔪

a lesson from Visa on customer insight 💰

Welcome to the 96th edition of the GrowthX Newsletter. Every Tuesday & Thursday I write a piece on startups & business growth. Today’s piece is going to 94,400+ operators & leaders from startups like Google, Stripe, Swiggy, Razorpay, CRED & more

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BNPL (Buy now pay later) is a short-term micro credit model through
which users can delay payments for 14-30 days with little to no interest
on their online purchases through e-commerce platforms.

Some context on this story 🗓
Remember 2020, your every friend / colleague was using a BNPL app (LazyPay, Simpl). Most jumped on the idea of cash-backs and one click checkout. What started as faster checkout soon became a spree of BNPL credit cards & that's where slice card product came into picture.

Traditionally credit cards have catered to sophisticated audience - users with a credit history, a CIBIL score, and an appetite to pay back their dues on time. BNPL entered the market hoping they’d go beyond this segment and allow cohorts to enter - students, young professionals, housewives, basically people who lack all three parameters.

The movement birthed multiple BNPL players like Simpl, ZestMoney, LazyPay, Flexmoney amongst others in India. Even traditional banks such as ICICI’s ICICI PayLater & HDFC Bank’s FlexiPay joined the party.

But, why did BNPL make sense in the first place? 🙇🏻‍♂️
First, it offered customers a one click checkout apart from pay later part. Second, it offered online merchants a fail proof payment method and indeed improved store checkout rates. Both parties had a win-win.

The Government of India had different plans though 🥲
In June 2022, it announced that non-banking financial corporations (NBFCs) can not load a prepaid account and give it out as a credit line to its customers. That was a huge blow to the likes of Slice, LazyPay and whoever had launched a credit card buy then. Once the regulation got enforced all of them had to roll back these credit cards to an extent.

Slice’s largest income source was card processing fees in 2020–21. Historically, RBI’s never allowed NBFC’s to issue cards, and BNPL somehow made the best use of this loophole, but not anymore.

The credit card market was growing 📈
It went from 37.5 million credit cards in 2018 to 62 million credit cards in 2021. That boosted the penetration of online buyers owning a credit card. The time was right.

And, Visa implemented the one-click checkout 🧠
It learned from BNPL apps & created a single click checkout on every Visa credit card (currently enabled on a few users) for online transactions. That means merchants now had the exact same experience of fail-proof payment method and customers had a 50 day pay later period compared to just 15 days with most BNPL apps to pay back their loans.

That’s all for now ✨
Sometimes understanding an insight from the competition can led to building far better products for your own users. Especially, if you are in a dense jungle of financial products. I write this newsletter to help the ecosystem get better at growing internet products. I would appreciate if you share this newsletter with your colleagues & friends.