Podcast July 15, 2020

Why buy now, pay later is the future of credit

The world has changed so much in 50 years… 

So why is it credit cards remain almost the same?

There must be a better way to do credit. 

But how?

Nitya Sharma, Co-Founder & CEO at Simpl, has created a buy now, pay later service he is confident will shake us from our out-dated credit-card dependency. 

I caught up with Nitya to find out how services like Simpl might just be the final nail in the coffin of credit cards.

He covered:

  • How the Indian financial landscape inspired Simpl
  • Why credit cards are becoming obsolete
  • Why Simpl is thriving during COVID-19

In India, it’s Simpl

Nitya grew up in India and came to the U.S. for graduate school. 

After graduating with a degree in Natural Mathematics from University of Michigan, Ann Arbor, he worked on Wall Street for 10 years. 

Eventually, in 2014, he wanted to branch out from Wall Street and become an entrepreneur. Naturally, he thought the logical path for this was to start a hedge fund.

While he was mulling this over, he was spending a lot of time in India, where his parents still lived. 

Since he was spending so much time in his birth country, he applied for a credit card from his bank in India. 

And they rejected him. 

It made sense from a technical point of view — he had no credit history in the country — but for someone used to platinum cards, it still came as a bit of a shock.

But then he noticed something…

Very few people in India have a credit card. 

In fact, in a country where 500 million people have smartphones, only about 25 million have credit cards.

In India, people are shopping online on their phones on major internet retailers, ordering ride-share trips and paying for online food-delivery services with cash. 

And it’s not because of a lack of financial inclusion. India is one of the most banked countries in the world with possibly the most sophisticated banking structure in history.

Yet, most of the credit utilization in India comes in the form of tabs at retailers. 

Seeing this gap in the market, Nitya had an idea. He’d build a credit card company.

“In the world of internet, where everybody has smartphones and is buying online, do you really need to build a credit card company?” — Nitya Sharma

But the more he thought about it, the more he realized he needed a better service to buy now and pay later.  

After all… 

Credit cards are so last century

Credit cards have remained virtually unchanged since the 1960s. 

It’s pretty weird when you think about it. You wouldn’t hop on the internet with a room-sized computer from that era, would you?

And it’s not just that it’s an antiquated system. It’s that the business model is anti-merchant and anti-consumer. 

Merchants are being charged high MDR rates, while are consumers are hit with high-interest rates. 

Meanwhile, the experience is awful, too. 

First of all, it’s too cumbersome. The best payment experience is no experience. The less friction, the better.

It also doesn’t build trust. 

If you look at India’s retail credit system — akin to bar and restaurant tabs — it fosters trust between the seller and the customer.

But credit cards mediating that transaction strip the merchant of the chance to build loyalty.

So, Nitya changed his plan. He wasn’t going to build a credit card company.

He was going to take the informal ledgers between merchants and consumers and move them online. 

The idea was Simpl.  

“In a 20-year horizon, your phone will be a personalized credit card.” — Nitya Sharma

It allows users to add up their smaller transactions — $20 to $300 dollars per transaction — and pay later, without the high-interest rates of the traditional card. 

Merchants also save more and are able to offer rewards in lieu of those typically offered by traditional credit cards.   

And it couldn’t come at a better time. 

Credit cards are actually becoming even more cumbersome in an era when people engage in lots of smaller transactions online and at retailers using credit.

Thanks to smartphones, instead of buying in bulk on Amazon or some other online retailer, most people think of something they need and buy it.

Technology has changed our purchasing habits, so it stands to reason it should change our payment habits. 

Add to that the current pandemic, and Nidya’s buy now, pay later model is proving itself more every day. 

How Simpl is faring under COVID-19 

Even though the world seems upside-down right now, the very things that make Simpl attractive to consumers are either unchanged or amplified by the pandemic. 

The small purchases we make — food delivery, groceries, etc. — are still necessary in a socially-distanced world, of course.

And the demand for digital payments for these items is soaring, whether or not it’s in the form of paying later.

There are a couple of aspects of the pandemic that are accelerating this movement to digital.

First, let’s talk about cash. 

“Handling cash naturally seems unhygienic in a time of COVID.” — Nitya Sharma

In a world where fear of an unseen virus abounds, it is hard to confidently handle something you know has passed through countless hands before yours.

Similarly, the concern over the virus has made the idea of going to a physical bank branch somewhere seem wholly irresponsible. And that’s pushing more people to look for alternatives in the digital sphere.

While the movement into digital can easily be seen as inevitable, the COVID-19 world has hastened user adoption.

As a result, digital-first financial brands like Simpl are thriving. 

To ensure that you never miss an episode of Payments Innovation, subscribe on Apple Podcasts, or Spotify, or here

Until next time!



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