Online players plug transaction losses through pay-later service
Do you want to buy the new phone you saw on the internet but are short of cash? Don’t worry. Here’s help at hand. Just read on.
A number of companies are making it big by allowing you to indulge in the ease of enjoying, a product or service, now and paying later.
Meet Simpl, ePaylater, and Lazypay by PayU, for instance. These companies have cracked open a niche offering in the fin-tech space, making micro credit system a way of life for online shoppers.
While LazyPay is backed by one of the biggest payments solutions companies globally– PayU, the Mumbai-based Simpl has raised seed funding from California-based Green Visor Capital and the New York-based capital firm, IA Capital. ePaylater has raised USD 2 million from multiple investors across the globe.
Although the early adopters of the pay-later system have been in the food-tech space and online shopping, other organisations that depend on internet-based transactions are also catching up. IRCTC, the Indian Railways ticket-booking system for instance, has tied up with a service provider to let users book tickets instantly but pay at a later date.
“There is a definite business opportunity in converting cash transactions for online players into digital transactions. It is also a very effective growth driver for online commerce companies,” explains Simpl co-founder Nitya Sharma.
This is how it works: The service providers tie up with online portals to add a pay-later option. First-time users of the service have to create a profile, feed in personal identity details such as Aadhaar and phone numbers, and email id.
A backend algorithm then reads through the user’s transaction history, browsing pattern, products of interest etc, to determine the user’s eligibility. After that the customer can choose to pay later at the click of an option and can settle a cumulative bill within a stipulated cycle, typically 14 days, through a digital payment mode.
This facility, known as digital transaction, has spawned since the advent of online commerce. But India, with its predominantly cash-driven economy, has been slow to change. The country continues 68% transactions in cash compared to 9% of the US.
“To get people to move away from cash, you need to give them a fitting alternative which will be frictionless. It also takes care of the trust factor. The user can buy and experience their purchase before paying for it,” Aurko Bhattacharya, co-founder of ePayLater says. The company handles about 2,500 transactions a day.
For e-commerce companies, it is an opportunity to curb loss of sale due to transaction failures at the payment stage, which accounts for at least 30% of their traffic. The figure stands at 70% if we consider other factors of transaction failure. Such players lost about USD 4.4 billion in revenue in 2015 due to payment drops.
“The need for a service like LazyPay came about because merchants wanted to do away with payment drops. For consumers it is a frictionless transaction, eliminating the need for repeated OTPs, CVV numbers or net banking details,” Pallav Jain, head of consumer business, PayU India, said.
LazyPay, which went live in March, has tie ups with Indian food delivery vendor Box8, restaurant search aggregator Zomato, Jazz Cinemas, online medical store Netmeds, PVR, food vendor Innerchef, communications solutions company D-Vois, online bus ticket vendor Abhibus, food vendors Salad Days, Faasos, and FreshMenu. The company has over 150,000 users, and handles about 100,000 transactions a month, with an average ticket size of Rs 600-650.
The pay-later service also works as a customer acquisition tool for the online portals. A quick and convenient payment mode ensures the customers come back for another purchase. According to Sharma of Simpl, their merchant partners have seen their conversion rate increase by 50% to 80% after adopting the service. Simpl has partnerships with over 30 merchants, including BookMyShow, Faaso's, FreshMenu, Box8 and Zipgo.
Like other credit systems, this arrangement too imposes penalty for delay in payments. While Simpl levies Rs 50-100 for delayed payments, ePayLater charges a flat 3% per month, on a daily accrual basis. LazyPay charges Rs 10 per day for non-payment.
However, these companies are not as harsh with their recovery process as may appear. “We don’t see late fee as a revenue stream and waive off the late fee for first three transactions anyway. We don’t operate with the mindset that the user is trying to cheat us. Sometimes we waive off the late fee at users’ requests also,” Sharma of Simpl says. The company, like LazyPay and ePayLater have stayed clear of aggressive recollection approach and have adopted an automated, non-intrusive reminder system.
What if, the user doesn’t pay at all? That’s the biggest risk this service entails, says Jain of PayU. The companies take into account about 0.5% to 1.5% of delinquency rate on an average. In case of a transaction turning a non-performing asset, the companies also have a legal backup since the service is based on a contract with the user.
But till now, none of the companies have taken the legal route to settle non-payment of bills. LazyPay, for one, employs technology and analytics to anticipate risks. Their system is engineered with proactive analytics and machine learning algorithms that helps the company draw up a profile of the customer and come up with a ‘trust score’.
Simpl and ePayLater also have similar algorithms in place that use machine learning and advanced analytics to capture a user’s creditworthiness. The most prominent users of this facility are the customers who are categorised as ‘online first’. The service is open to select customers, with high transaction frequency, the amount of micro credit extended to a user also depends on the rating.