No credit card? No sweat. You can still eat, dress, shop now, and pay later

With smart new apps, you can buy groceries, clothes and movie tickets or dine today, and pay later, even if you do not have a credit track record

It is quite common to see the pay-later or credit option while making big investments, such as buying a house or a car. Today, however, pay-later services are available for practically anything under the sun. And these include small purchases like clothes, gadgets, movie tickets, and even food.

For about 120 million online shoppers across the country (according to a 2018 Assocham estimate), bill payments, food ordering, travel, and movie ticket bookings have never been easier.

Start-ups like LazyPay, ZestMoney, Simpl, and ePaylater, have come up with pay-later apps, targeting the mobile-savvy generation. According to these companies, most of their consumers are from the top 10 cities of the country, and are aged between 21 and 35 years.

The pay-later service basically gives you a small amount of credit on the spot, upon sign-up. Chaitra Chidanand, co-founder, Simpl, says: “The main advantage of using these services is that you can skip the onerous payment process every time you transact. You do not have to deal with payment failures, repetitive verifications and other factors that ruin the buying experience.” Most of these start-ups have partnered with big digital brands like Amazon, Flipkart, Xiaomi, Myntra, MakeMyTrip and Yatra to provide instant credit through their platforms.

Lizzie Chapman, CEO and co-founder of ZestMoney, says pay-later services are faster and easier than traditional small-ticket loans. When they go with traditional mediums, borrowers need to provide various details, including the amount to be borrowed, credit score, and end-use of funds. Pay-later apps, on the other hand, provide a credit limit to you based on your personal and bank details.

The credit limit is decided on the basis of your repayment capacity analysed through the details you provide during registration. Chapman adds: “The credit limit is automatically upgraded by collecting information from users’ bank accounts. The credit limit of a user can be as low as Rs 5,000 and, since it is dynamic, it is upgraded based on repayment behaviour.” Due to this, the new-to-credit people get lower credit limits for their first few transactions. But the limit can be enhanced when you repay EMIs on time, and can later be used for larger-ticket purchases as well.

Pay-later apps also give you the flexibility to club all transactions together and make consolidated payments. For instance, LazyPay offers consolidated invoice summaries on the 1st and 16th of every month. You can pay back the amount right after the transaction until the next due date to avoid late penalty charges. Most of these start-ups offer 15-20 days of interest-free period and additional penalty in case you miss the deadline. ePayLater offers a 14-day interest-free period and charges a late payment fee of three per cent per month in case you miss the repayment date. LazyPay gives defaulting users three extra days to make the payment, including a daily penalty of Rs 10. Chidanand adds: “These are best suited for cases where the transaction amount is low, with a high frequency of use, such as food ordering, grocery, and shopping.”

Pay-later companies extend short-term loans, often as little as Rs 300. These startups earn their revenues from late payment penalties, interest (around 3 per cent) from late payers and a commission from merchants. The repayment cycle is around 15 days, unlike the monthly cycle of credit cards. Experts believe, with the need for proper credit score and credit rating, credit card applications are turned down a lot in India. Pay-later companies are looking to tap the market for formal micro credit, especially for people who do not get credit card sanction.  

Chapman of ZestMoney makes a comparison between pay-later apps. She says mobile wallets can only be used to make payments against the money in hand, whereas pay-later services offer instant credit to users, irrespective of the amount in hand.

Online lending has exploded the past few years, leaving users susceptible to data leaks. So, experts advise that it is better to get credit from a reliable and trusted brand that ensures privacy protection.