Informal BNPL gets back its groove- Higher credit, shorter repayment periods and digital payments stand out as key trends

Mumbai, March- 09, 2022: OkCredit, the pioneering digital book keeping app released its annual study titled ‘Decoding Informal BNPL’-a detailed report that delves deep into the system of credit linked purchase in unorganised retail. This informal BNPL plays a major role in running India’s retail engine, 85% of which is unorganised, taking place through neighbourhood brick and mortar stores

OkCredit’s data report is based on the insights generated from 1 billion transactions on its platform that were recorded last year. The company witnessed a 25% growth in volume of transactions, compared to year before. In value terms, $50 billion worth of credit was added on the digital bookkeeping app, capturing 1.6% of the national GDP.

Quite similar to the exponential growth witnessed in modern BNPL, the informal BNPL too is seeing robust growth along with strong metrics, according to the report.

For example- a good indicator of a healthy BNPL is repayments. The repayment tenure, also known as credit cycle has come down for all categories, pointing to faster repayments in informal BNPL. Apparel and medical stores which saw their credit cycle jump up to more than 60 and 40 days respectively during peak of the pandemic in 2020,  have seen a steep decline.

The report gives a clear picture of credit behaviour in unorganised retail by dividing small businesses into medium, small and micro. While micro businesses contribute to the volume, medium and small businesses make up for the value. It further digs into several layers- category, geography, tier, B2B/B2C to come up with insights that are unique and a first in the sector.

Take NPAs (Non-performing assets) for instance. While NPAs for the organised sector are known and easy to measure, there is hardly any data on NPAs in informal BNPL. The report brings out an estimate of NPAs in informal BNPL, pegging them at 4% for medium businesses, 5% for small businesses and 8.2 % for micro businesses. Higher NPAs in micro businesses are due to small size of credit transactions. Shop owners, many a times have a laid back attitude when it comes to collection of small credit, which later leads to NPAs.

Micro businesses in Bihar, Rajasthan and Madhya Pradesh have the highest NPAs.  Geographically, Jammu and Kashmir has been the best performer when it comes to credit recovery for small businesses. It has seen NPAs decline from 7.8% to 3.4%.

The report also dwells intensely on peak credit size- the maximum amount of credit a shop owner records for an account. Peak credit size is a barometer for credit capacity of small, medium and micro merchants. Peak credit size for both small and medium businesses has expanded indicating a growth in their business. Since micro businesses were worst affected in the pandemic, a lot of them have reduced selling on credit and are optimizing for positive cashflows. It’s reflected in the data, as credit size for micro businesses has only marginally increased and even declined in most cases.

The most important aspect of a credit business is credit recovery. OkCredit’s data shows that while cash payments are the primary mode of payment, digital payments are on the rise and growing steadily. Nearly 90% of the online payments users on the platform use UPI.  Within that, 60% of the payments for purchases under Rs 200 are being made through UPI.   GPay leads in UPI payments, followed by PhonePe, Paytm and Bhim. Paytm is a leader in small ticket transactions- under Rs 200 payments and dominates at paan shops.

“Digital payments have been a catalyst for growth in every sector. But so far, there has only been anecdotal data to understand its adoption in unorganised retail. With this report, we have outlined pockets of growth in digital payments. The rapid growth of payments on our platform is an indicator of the eagerness of SMBs to latch on to online payments for growth”, says Gaurav Kunwar, Chief Product Officer and Co-founder of OkCredit.

The report further states that the next wave of growth among retail SMBs will be driven by availability of easier credit. There’s a vast scope of formalising this BNPL for retailers, offering them the same ease and convenience that millions of consumers in India are getting.

“Over the years of facilitating informal BNPL, OkCredit has brought about a huge transformation. This positive change is also reflected in our data, wherein we have seen the credit cycle going down and credit sizes going up. Thanks to digitised credit records, merchants have a better visibility of their customers, can remind them and get back payments faster eventually leading to improved cash flows. This is just the first step. Digitisation is set to unlock many more growth opportunities for retail SMBs”, added Harsh Pokharna, CEO and Co-founder of OkCredit.