In recent years, buy now pay later (BNPL) has emerged as a popular tool widely used by online consumers
Bengaluru-based Simpl claims to have seen exponential growth in the past 18 months, recording 10x growth
It told Inc42 that it grew its merchant network from 1K in 2019 to over 15K in December 2021
The pandemic brought a radical shift in consumer behaviour, as they pivoted to online platforms to access all types of essential services including buying groceries. This digital-first mindset also led to innovations from brands to ensure an unmatched experience for the users, hence scaling retention and loyalty. Amongst these innovations is simplifying the checkout process for the users.
A survey by logistics company, Pickrr, revealed that about 60% of the users quit shopping from a brand because of a drawn-out checkout experience. Such occurrences might throw a wrench in the works and hinder a company’s growth because they reduce revenues at the very end. Helping brands with such challenges, many ecommerce enablers have launched several solutions and it is here that Buy Now Pay Later (BNPL) has emerged as one of the most popular financing options in India.
BNPL not only helps brands improve conversion rates and reduce cart abandonment, but also plays a crucial role in bringing home repeat/large-ticket purchases by making funds available to consumers. These easy lending norms and instant access to capital have made BNPL a global trend. According to McKinsey’s Consumer Lending Pools data, BNPL players across the globe take away $8 Bn – $10 Bn worth of annual revenue from banks.
This has also translated into the Indian market today. Consider Simpl, a Bengaluru-based checkout network that has witnessed exponential growth between 2019 and 2021. The fintech player saw its B2C customer base grow by 3.5X during this period from 7 Mn to 25 Mn, while the number of merchant partners rose by 15X from 1,000 to 15,000. Currently, the number stands at more than 20,000, while recording a 10X growth in the past 18 months.
To expand its offerings, Simpl has raised over $110 Mn so far including $40 Mn in Series B funding led by Valar Ventures, PayPal cofounder & CEO Peter Thiel’s VC fund, and existing investor, IA Ventures. LFH Ventures and other existing investors also took part in the round. It has also attracted investors such as Greenvisor Capital, Recruit Strategic Partners, and FJ Labs.
Paving The Path, The Simpl Way
The year was 2015, when Sharma — a credit professional working for several US-based hedge funds and financial institutions — returned back home to India. Here, his application for a credit card was rejected. Despite that, he managed to get lines of credit (khaata) from local merchants as he was a reliable customer.
Realising the challenge in the market and how it can affect the business for ecommerce brands, Sharma cofounded Simpl. The startup was set up as a mobile-first platform providing customers with spend limits in the range of INR 1.5 – 20K at checkout and focussing on the small-ticket, high-volume play.
The bill cycle is limited to 15 day-periods, and no interest is charged to customers who pay on time. If the cycle is extended, the startup charges users a small amount as a late fee for repayment delay, but the bulk of its revenue comes from per-transaction fees paid by merchant partners.
For customer onboarding, Simpl uses the data shared by the merchant partners, which is then subjected to a set of rigorous algorithms. Once a user is approved, the purchase can be closed with 1-click checkout within seconds.
The startup currently boasts a fast-growing user and merchant base, but it was not all roses during the early days. The biggest challenge was to onboard merchants as the success of this model depends on the depth and variety of products for which Simpl can be used.
“The hardest thing was to convince the first set of merchants because they were going to be the first node of the network, and why would anyone want to be that? We often jokingly say, the first 10 merchants are impossible, the next 100 are very hard, but the subsequent 10,000 are easy,” Sharma earlier told Inc42.
Working on the premise of ‘Network Effect’ and being amongst the first to launch such a model in the market, it is understandable that the startup faced some reluctance from merchants in its early days. It told Inc42 that it was the first node of the network that took a bit of convincing as to why and how this model could be the future of building a seamless experience in ecommerce.
Inside Simpl’s Service Innovation
The Core Proposition
The company’s core offering includes a two-pronged approach. On one hand, it is focussing on the user’s experience and convenience. On the other, it acts as a major growth tool for online merchants by bringing in more traffic and boosting conversions and repeat purchases. The startup claims to have helped its partner merchants increase the average order volume by 35 – 40% and double the order frequency.
As its business model thrives on small-ticket, high-frequency buying, Simpl has carefully curated its merchant partners to capture that specific market segment. The idea was to build a merchant network with the ‘right’ set of users unlocking benefits from the platform. However, it does also offer Simpl Pay-In-3, allowing users to buy slightly higher ticket items from merchants such as Crocs, Superkicks and Puma.
Currently, the startup is betting on groceries, food delivery, online pharmacy, travel ticket booking as well as fashion and beauty verticals as these segments mostly witness a large number of small-to-medium-size transactions. It works with some leading players such as Zomato, BigBasket, Purplle, Dunzo, JioMart and 1mg and aims to onboard 80K merchants in the next financial year.
“We like the grocery segment very much because consumers buy groceries often and consistently. Moreover, this segment has exceedingly low penetration and promises a long runway for growth. Overall market research and our analysis indicate that this is also among the fastest-growing segments within the burgeoning digital commerce ecosystem,” said Sharma.
Billbox For Convenience
Simpl also allows registered users to pay their utility bills with just one click tap via Billbox. After setting up bill pay on the app, the user can automate recurring bills leveraging their spend limits.
The Pay-In-3 Solution
In May last year, the startup launched a flexible payment option enhancing its service offering. The solution called Pay-In-3 allows users to split the purchase value into three equal instalments. The key benefit is the extended timeframe as buyers get 90 days to repay in full instead of 15 days.
According to the company, this service aims to be more of a budgeting tool. From a revenue perspective, Pay-In-3 will work just like its core business, which means merchants will still be charged fees on a per-sale basis.
The fintech firm aims to go further and offer another tool to help users manage their finances better and be in control of high-value purchases with longer repayment cycles.
“We are very excited about our new offering. Besides creating more customer value, it will help us onboard a wide range of merchants. Every new merchant we bring in also increases the utility of our platform,” said Sharma.
Risk Assessment And Contingency Plans
With an emphasis on keeping the onboarding process and user interface simple, the startup leverages its in-built fraud detection tech that uses AI and ML.
However, the company states it has managed to keep the default rate below 1.3% despite its fast-paced user acquisition. Simpl’s team of data scientists, anti-fraud experts and risk analysts have already built a robust model that is continuously improved. Moreover, its ML-powered algorithm captures all critical metrics by tracking a user’s transaction behaviour. The initial spend limit is kept at a minimum (it differs from user to user depending on spending patterns) and increases incrementally after each repayment. The repayment behaviour of customers also acts as a trust-building mechanism.
“The biggest risk management tool is delivering a great user experience to the best customers of our merchants. For any unintended use, we have built a suite of fraud prevention tools and algorithms that allows us to keep defaults low. But the most important aspect is to position our product to attract the right customers and retain them for a very long time,” said Sharma.
The simplicity of its business model has worked for the startup so far, helping it maintain user retention rate of 90-95%.
Challenges And Road Ahead For The Sector
According to a recent Inc42 analysis, the BNPL market size in India is estimated to reach $43 Bn by 2025, growing at a CAGR of 80% due to the early nature of the market. And going by expert opinion and the current market trends, this segment is primed for greater growth.
Given its increasing demand among online shoppers, it is not surprising to see many new names enter the segment to tap into the opportunity. What comes as a differentiator for Simpl here, is frictionless payment and checkout experience for the consumers — ensuring fast and smooth transactions.
While acquiring a lending licence is essential in the formal lending market — non-regulated companies cannot provide loans to businesses or individuals — the country does not have specific regulations for digital lenders yet. But recently, a report by a working group under the Reserve Bank of India released a set of guidelines related to online lending. A key suggestion by the group is that lending should happen only through the books of regulated and recognised entities.
“Consumer interest is always first and foremost for regulators. It’s no different for us at Simpl. As an open check out network, trust and transparency are baked in our business model. The regulators and the government are working towards finding the right set of rules for this business, which we are very appreciative of,” said Sharma.
Interestingly, the opportunities in this space are so lucrative that deep-pocketed players such as Amazon India, Flipkart and BYJU’S have also introduced customised BNPL services on their platforms.
