First thing’s first. Merry Christmas folks. Hope you and your family are having a great holiday. And while 2021 has probably been another roller coaster year for all of us, I just wanted to take a few seconds and appreciate the support we’ve received from all our readers. Frankly, in the midst of all the doom and gloom surrounding the second wave, your constant support and words of encouragement have served as a guiding beacon for all of us here at Finshots. With your backing, we managed to launch Ditto, grow to over 70 members, and keep the newsletter free for everyone. It’s been an amazing journey and all you lovely folks have our deepest gratitude.

Also, we won’t be publishing stories over the next week. In fact, we will be going on a short hiatus and will only start publishing once again come January 3rd. However, in the meantime we will mail you some of our best articles from 2020 and hopefully, that should make it a little better. Please accept our apologies and bear with us for this short period.

And with that introduction out of the way. Let’s get to the wrapup, shall we?

On Monday we talked about India's big semiconductor push, next we discussed what the inflation data is really telling us. On Wednesday we tried to work out why SEBI banned futures trading in a few commodities, then we took a lot at why Indian apps are sending you weird notification and finally we discussed the great Indian sugar dispute

Also, in this week's Markets edition, we have a story on the general market outlook for 2020 and you can read that story here.

The Story

November and December are probably the hardest months of the year for everyone’s wallet. You have to buy gifts; there are weddings to attend and you need new clothes. And then there’s all the other stuff that you want to splurge on — cakes, cookies etc. You deserve to spoil yourself a little silly too, no?

But before you know it, your bank balance has dropped precipitously. And your budget has gone for a toss.

As if the temptation of swiping the credit card wasn’t enough, these days we have something else to contend with — Buy Now Pay Later (BNPL) schemes. It’s a loan dressed up in a tuxedo or cocktail dress to make it fancy.

Say you want to buy something priced at Rs 2,000 on an e-commerce platform. But you look at your bank balance and decide it’s a little too pricey for now. You prepare to ditch the idea and postpone the purchase for when the next salary comes in. But before you do that, the platform gives you an alternative — BNPL. It tells you that you can buy now and pay the amount the next month. Without any interest!

How does that work? Well, a BNPL company like Simpl or Lazypay will take a small fee for their service and pay the e-commerce platform immediately. Let’s say Rs 1,900 in this case. They will then wait for you to pay them Rs 2,000 next month. So, in a sense, that Rs 100 the BNPL company pockets is the income they generate in the process. Or put another way, they get the discount, but you don’t.

The problem is that even if you don’t want to use BNPL schemes, both online and offline platforms are nudging you into it. By giving you incentives to get you hooked. Amazon and Flipkart were extending cashback of Rs 100 if you chose the BNPL mode of purchase. Croma was offering a voucher of Rs 250 if you paid for a product using ICICI’s BNPL feature. The temptation is everywhere.

Even if you decided not to use a credit card for your budgeting sanity, BNPL could nudge you into the credit cycle. And it’s typically a very short-term credit for the next 15–45 days. If you can’t pay it back in that given time, they’ll give you the option to pay via instalments over a longer period. And that often carries added interest costs and processing fees as well.

Remember, BNPL is extended to consumers in a bid to reduce friction during purchase. And not all friction is bad, especially if you're in a tight financial position. The added convenience may be great for somebody who isn’t too stressed about their next paycheque. But it could be a debt trap for somebody who already has problems with money management. So remember, a little financial discipline can go a long way.

Until then…

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PS: There have been a few horror stories of how BNPL loans show up on credit reports. So, remember to do a regular check of your credit report!