Caveat emptor: Users seek better disclosures on pay-later schemes from e-tailers

The pandemic and the associated lockdowns have led to an increase in the use of ‘buy now, pay later’ schemes on e-commerce platforms. Consumers availing of this convenient facility, however, are often unaware of the fact that they are in effect creating a loan account at the back end.

Shoppers who bought products discovered that even after they had paid for the products, their credit reports showed a large loan against their names. The online shopping platforms in these instances had at no point disclosed that the shopper was in effect being given a loan by a bank to avail of the ‘pay-later’ option. While offering a shopper the option to make a deferred payment, an e-commerce platform must have a tie-up with a lender on whose books the amount sits as a loan.

Ishwar Nalawade, who had made a `5,000 purchase on Flipkart in November 2019, realised he had been issued a credit product only in August 2020, when he approached a different bank for an education loan. “I then got in touch with IDFC First Bank, whose loan it was, and they promptly closed the account. When I asked why there had been no communication from them about the loan, they told me that the details are there in FAQs on Flipkart’s website,” Nalawade told FE.

Emailed queries to Flipkart did not elicit a response till the time of going to press. After repeated complaints from customers, Flipkart and IDFC First Bank tweaked the option to ensure that only the amount which was pending was displayed as the ‘current balance’ in the borrower’s credit report.

Social media is flooded with complaints from people like Nalawade who discovered a Rs 60,000 personal loan from IDFC First Bank in their credit report, which they had never applied for.

It was only on contacting the bank that they realised that the loan account was opened in connection with a pay-later purchase made on Flipkart. What’s more, the account was shown to have an ‘active’ status long after the full payment for their purchase had been made.

IDFC First Bank responded to FE’s queries about the issues faced by pay-later users and explained that the Rs 60,000 amount was an annual credit limit issued to the shopper in an older version of the product. In other words, shoppers were enabled to make purchases worth up to Rs 5,000 per month using the pay-later option on Flipkart.

The e-commerce platform went live with the Buy Now Pay Later (BNPL) solution in partnership with IDFC First Bank in September, 2019. The option allowed customers to make purchases on Flipkart and pay an aggregate bill for all purchases by the 10th of the following month.

A spokesperson for IDFC First Bank said, “In version 1.0 of Flipkart BNPL, this loan was booked as a personal loan facility with a sanctioned limit of Rs 60,000 a year, which was Rs 5,000 for 12 months. In version 1.0, the loan of Rs 60,000 reflected in the Bureau report as the aggregate sanctioned limit for a year.”

The actual amount utilised against this limit was reported under ‘current balance’ in the customer’s credit report. “The FAQ on the Flipkart Pay Later site clearly says that ‘the aggregate amount will not exceed Rs 60,000 in a year.’ This is also mentioned in the sanction letter that is emailed to the customer,” the bank added.

In June 2020, version 2.0 of Flipkart BNPL was released. In this enhanced version, while the customer continued to get the annual sanctioned limit of Rs 60,000, only the monthly sanctioned limit of Rs 5,000 gets reflected in the bureau report. “When a customer requests a closure of the facility, we close the facility and the same is reflected in the credit Bureau records as well. Until then, the customer enjoys the facility and has the right to use it,” IDFC First Bank said.

However, online posts by customers made as recently as September 21 show that they are unaware about the loan facility associated with their pay-later purchases.
The Reserve Bank of India’s (RBI) policy on disclosures about such loan facilities is unclear. An email sent to the central bank with a detailed description of the Flipkart BNPL solution and seeking responses on RBI’s rules for such products remained unanswered.