What explains the lure of pay-later cards like Slice and Uni?

On its website, Slice introduces itself as India’s best credit card challenger. And it is apparently emerging as one. Slice turned as a unicorn after raising $220 million last month in a Series B round. It is issuing 2,00,000 cards every month, trailing only HDFC Bank and ICICI Bank, and boasts a waiting list of over a million users. 

And just like Slice, another startup, Uni, is also making its mark and has found a disruptive workaround in the form of pay-later cards. In October 2020, Uni raised $18.5 million in a seed round without a product in hand. Uni has disbursed Rs 120 crore in the month of November. The startup claims it is seeing a 40 per cent month-on-month growth.

Let us first find out how pay-later cards are different from credit cards. India has just 66 million credit cards in circulation. On the other hand, 934 million debit cards were in circulation in October. It is because it is not an easy task to secure a credit card in India as banks are highly conservative in this segment. They prefer customers with full-time salaried jobs or those with high credit scores.

If you are a student, freelance professional, a self-employed person or a blue collar worker you can be rest assured that banks would largely ignore you. But the fintech companies offering pay-later cards are promising to change this all.

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More than anything, by focusing on millennials who are digitally active but without a credit history, these startups are helping them build credit scores for the first time. For this, Slice is issuing cards with a credit limit as low as Rs 2,000 which is then dynamically increased as users spend more and get consistent in repayment.

Uni’s CEO and co-founder Nitin Gupta told Business Standard that its existing card is designed for people to tide over short-term liquidity issues. While Uni currently depends on credit scores to choose its customers, the startup will soon launch another product that is targeted towards customer segments that do not have access to credit today. 

And unlike the credit cards, pay-later cards don’t have revolving interest. Credit cards charge interest on interest. And in case of late payment, interest is charged from the date of transaction. In pay-later, there is no interest fee on new purchases in case of partial payment.

A pay-later card offers greater flexibility and simplicity in repayment also, which is what the companies are projecting as their selling proposition. While Slice allows its customers to split their monthly spends equally over three months with no additional charges, Uni goes a step further by doing this at the transaction level. Uni customers can choose the transactions for which they want to pay in full and split the rest over three months.

Fintech companies rely on banks and NBFCs for underwriting the loans while they take care of the tech platform that rides on flexibility and transparency

This business too comes with its fair share of risks in the form of non-performing assets and the true test of their underwriting process will be known only in the medium term. But in due course, we can expect such innovative lending companies to substantially increase the total addressable market for their cards and other credit products from traditional financial institutions.

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