Travel Now, Pay Later: A Debt Trap?

TRAVEL TO MALDIVES on packages starting ₹7,916…or just pay ₹15,000 and enjoy a Thailand tour, says a Chennai-based travel website. Plan a vacation to Ladakh at ₹5,000 per month, says SanKash, a provider of buy now, pay later (BNPL) solutions, with ‘per month’ written in microscopic font. Another EMI solution provider, emibaba.com, is offering Thailand holidays for ₹1,800 per month and Dubai visit for ₹2,400 per month. You don’t need money to travel, says Zyppys.com, another provider of BNPL services.

Numbers show that such enticing BNPL offers are helping brands sell their expensive products and services to consumers who cannot afford them. The Indian BNPL market grew at 321% CAGR in terms of gross merchandise value (value of loans disbursed) during FY19-FY21, says Ken Research. ZestMoney, a consumer lending fintech platform with 17 million registered users, saw a 300% increase in transactions in 2021 compared to 2020 with travel being the top growing category. There was a 2.3 times rise in number of travel transactions; of this, 50% was in November and December 2021.

Travel BNPL or travel now, pay later schemes offer fast loans for travel. The loan provider or fintech platform gives consumers the option of paying back after returning from the trip in instalments without interest for a period ranging from a few days to a few months, usually up to three months, after which it starts charging interest. But is this as simple as it seems? What is the actual cost for borrowers? Should travellers opt for such schemes? Let’s dig in.

Pent-up demand

With travel restrictions easing after two years of pandemic, travel platforms, fintechs and airlines have seen abnormally high demand for BNPL schemes. The later part of 2021 saw many companies launch BNPL in travel for people desperate to go on a vacation after being confined at home for months.

TripMoney, the fintech arm of MakeMyTrip that has launched BNPL schemes, has seen four times growth in last two years. Today, people planning trips on the platform actively opt for this payment method for flight, train and hotel bookings. Another online travel platform, Cleartrip, has reported that its advance bookings rose over 10% last year compared with 5% in 2020.

LazyPay, a fintech lending platform, saw 300% rise in demand for credit, especially for travel, food and entertainment, in 2021. Another fintech player, Uni, saw a 30-35% increase in spending in the travel category in last two months of 2021.

SanKash, a travel-only fintech BNPL platform, saw a 50-60% surge in volumes after the pandemic, says co-founder Akash Dahiya. SanKash services around 5,500 travel brands. Apart from online players, it is also associated with offline players such as Thomas Cook, SOTC, Veena World, Kesari, Balmer Lawrie, TBO, Luxury Escapes and other medium and small players in 240 Indian cities. Another digital-wallet-cum BNPL service provider, MobiKwik, has witnessed 60% growth in travel segment compared to last year. Chandan Joshi, CEO, Consumer Payments, MobiKwik, expects the trend to pick up significantly.

Offline market leaders ThomasCook and SOTC have launched ‘Holiday First’ and ‘Pay When You Return,’ respectively. Customers can book holidays to domestic and some international destinations and pay after returning. Abraham Alapatt, president and group head (marketing) of Thomas Cook India, says the ‘pay later’ scheme is a great customer proposition.

In general, BNPL schemes have gained popularity, primarily among millennial and GenZ segments, due to high smartphone penetration, low-priced internet and fast adoption of e-commerce, says Anurag Sinha, co-founder & CEO, OneScore and OneCard, which helps clients improve their credit scores. Also, while people see personal loans and credit cards as debt, buying a product or service on EMI is more acceptable, says Akash Dahiya of SanKash.

But there is no free lunch. What NBFCs and BNPL players call ‘zero-cost EMIs’ may not be as beneficial as the advertisements suggest.

Say No to Borrowed Travel

Kiran Sindhwal, a New Delhi-based freelance web designer, says she is not going to fall for BNPL schemes for leisure travel again. “Last year, after the pandemic, my husband and I planned a Rishikesh trip with our two kids. That is when we got to know about BNPL. After returning, we paid within two months and did not incur any charges. We took another trip to Shimla and paid within time. Next, we went to Dubai using BNPL, but could not pay back in three months and had to incur heavy charges of 24% per annum on outstanding amount.” Sindhwal says BNPL option made them spend beyond means. “We started enjoying luxurious trips, which hit our budget,” she adds. The couple had to liquidate some investments to avoid paying heavy interest. “Travel now, pay later, became a debt trap for us,” she says.

Data bears this out (see Irresponsible BNPL Consumer Behaviour). Travel has the highest repeat purchase, says Akash Dahiya of SanKash. SanKash sees roughly 60% repeat customers because if there is no cost to EMIs, consumers will return, adds Dahiya.

But Raghvendra Nath, MD, Ladderup Wealth Management, does not like the idea of a travel loan as this means you do not have sufficient savings or assets. “Travel is a form of consumption. One should avoid consumption from borrowed money,” says Adhil Shetty, CEO, BankBazaar.

Reserve Bank of India has also been concerned about rise in interest-free borrowing saying this puts people at the risk of falling into a vicious cycle of overspending. “Push marketing and unsolicited offers may exacerbate the risk of encouraging borrowing without a purpose. Aggressive advertising, coupled with instant disbursements, can also lure some customers to borrow recklessly for consumption/lifestyle needs. Unsolicited invitations for digital loans can lead to over-indebtedness and non-repayment,” says an RBI report.

Travel can always wait. It’s always better to be financially safe than regret later.