What's This Craze About Buy Now Pay Later?

Yesterday’s Market Performance

Nifty: 16226.70 I -55.60 (0.34%)
FII Buy Net: 238.14 CR
DAX: 15,826.09 I 55.38 (0.35%)

Sensex: 54675.83 I 149.90 (0.27%)
DII Sell Net: 206.28 CR
FTSE: 7,220.14 I 59.10 (0.83%)

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Howdy Toasters!

In today’s issue, we discuss;

Buy Now Pay Later: changing the lending landscape in India? Let’s talk numbers.
Inflation the biggest threat to economic recovery and current market bull run continuation?
Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!

Siemens Ltd: 2,191.40 | 131.70 (6.39%)

The share gained over 6% and made a 52-week high of Rs 2,217.75 after the company released its June quarter earnings. Its net profit came at Rs 161.50 crore in June 2021, up 3,610.87 percent from Rs 4.60 crore in June 2020

Yes Bank: 11.95 | -0.35 (-2.85%)

The share slumped about 3% and touched a 52-week low of Rs 11.92 after private lender plans to set up its own asset reconstruction company (ARC) and has invited Expression of Interest (EoI) from potential investors.

Note: Above are not owned by the authors of the newsletter and are neither recommendations to buy the stocks; not our style at FinLearn.

Buy Now Pay Later (BNPL) is a rapidly growing opportunity (?); what do we know and what’s in store (:P) for you 🧐

Let’s look global, before we get local – in the US, it is estimated that USD 24 Billion worth of goods were purchased with BNPL programs in 2020, with the number expected to cross USD 100 Billion in 2021
Consumer preferences have changed – especially with Gen Z & Millennials leading the way – who prefer more inclusive, flexible and transparent ways to pay and manage their finances; roughly 4 in 10 Gen Zers & Millennials and 3 in 10 Gen Xers in the US have made a BNPL purchase in 2021 (nice!!)
Merchants (think: Amazon, Flipkart, Shopify, Intuit, and brick & mortar stores) are shifting towards an omnichannel approach and using BNPL to help increase conversion, ticket sizes, and customer acquisition / stickiness
The cherry on the cake?- Square INC (US listed, Jack Dorsey founded, Jay Z Invested FinTech firm, which has created a payment ecosystem for merchants & consumers) has just acquired Australian BNPL giant Afterpay for USD 29 Billion (all stock deal), with plans to extend the BNPL feature, and integrate the offering to their Cash & Merchant Applications
AfterPay revolutionized the BNPL phenomenon in Australia, expanding to the UK & US in recent years (see chart below); they derive >90% of their GMV from existing customers, showing very strong retention numbers, and their initial customers are transacting ~30x in a year (reflecting increased usage as time passes)

Damn!!! Nice! So tell me about India now? What’s the scene here? 🤔

BNPL in India has its idiosyncrasies, with average ticket sizes generally below an INR 10,000 threshold, loans remaining interested free when paid prior (and/or turning into low-cost EMIs if extended), and accumulation of multiple purchases into one bucket (for ease from a customer & fintech partner perspective)
But similar to global trends, Credit Card / Debit Card uptick amongst the younger generation (think: Gen Z + Millennials) is on the lower side, with a preference towards easier, transparent modes of payment (See chart below)
Likewise, credit underwriting for a segment that has not yet availed a loan or has just entered the workforce (and in some cases, not yet) is a different process (in comparison to a traditional banking approach), with fintech employing unique repayment likelihood forecasting models

Interesting! And numbers-wise? What’s the penetration? Who are the major players? 🤓

BNPL has grown in India (to say the least); in the last 12 months, transaction value-wise, this segment has recorded a 220% rise (low base effect, still)
FlipKart Pay Later, Amazon Pay Later, Ola PostPaid are amongst a whole host of merchants who has started providing BNPL services in the last 18 months, cueing in the burgeoning fintech ecosystem (think: Capital Float, ZestMoney, Simpl, MoneyTap, LazyPay) and leveraging their capabilities to underwrite customers
E-Commerce is a huge driving force, and with sub-10% penetration levels in the country, BNPL as an offering is just getting started?

Inflation the biggest threat to economic recovery and current market bull run continuation? 🙄

Inflation has been hovering above the RBI’s upper tolerance level of 6% for the past two months, with the governor (and the IMF’s chief economist, separately) indicating that they believe the number to be transitory in nature and eventually expect prices to stagnate
And yet still, for the first time since the October meeting of the MPC, one of its members expressed reservations about continuing with the accommodative policy stance
Economists believe the transitory nature of inflation is unique to every economy, especially when comparing Developed Economies (US, UK, Europe) to Developing Economies (India), with similar rules not applicable (interesting?)

Okay? What are you trying to say? 😕

Raw Material prices are rising, with Nifty50 and beyond company commentaries (from recent quarterly results) increasingly speaking about passing on costs to consumers to manage the spike in core raw material prices
- Britannia Industries: gradual price increase
- Crompton Greaves: locked supplies of raw materials through advanced contracts due to expected inflation
- Godrej Consumer: calibrated price increase to manage the raw material spike
- UltraTech Cement: Pet Coke & Coal Prices continue to surge, leading to his cost pressures
- Maruti Suzuki: taken a price hike, and indicated further hikes to manage raw material supply issues
Commodity Inflation (with a heavy supply vs demand mismatch) is affecting manufacturing & consumer-oriented companies alike

And? 🤨

The markets have touched new highs (globally as well), on the back of increased liquidity in the system, and especially because traditional channels are not providing that kind of return; ~14 Million first time electronic trading accounts were opened in the financial year ending March 21 (unprecedented)
The IMF has maintained their understanding of inflation, with an easing in headline numbers expected with the continuation of normal economic and business activity for a longer period of time (lack of the third wave, with greater % population vaccinated)
The threat of inflation is likely to persist and will hover over the markets (think: today’s movement, one reason amongst many)

What else caught our eye? 👀

GIFT City to allow investing in global securities

NSE & BSE are creating special platforms at the International Financial Service Centre (IFSC) in GIFT City (Gujarat, of-course) through which Indians can invest in foreign securities
The system will allow Indians to hold securities through depository receipts (an instrument that represents a foreign company’s publicly traded securities) in their own DEMAT accounts at the financial centre
Lack of taxes and absence of brokerage will significantly reduce costs for the end customer (as much as 60-70%), GIFT City regulations are different to the rest of the country

Cloudtail to cease operations from next year (Damn!)

One of the largest, and possibly the most controversial (?) sellers on Amazon is likely to end operations from next year, due to increased government scrutiny; a JV between the NR Narayana Murthy owned Catamaran Ventures and Amazon Inc has been accused in the past of circumventing FDI rules
India prohibits FDI in inventory based models or e-commerce players, permitting companies like Amazon & Flipkart to solely function as marketplaces, that allow businesses to list on their platform and sell