After BNPL (Buy Now, Pay Later) now TNPL (Travel Now, Pay Later). BNPL has gained popularity especially depending on the demand of e-commerce retail marketplace, BNPL industry is going to grow at 56% CAGR next year.
After being indoors for almost two years during the complete and partial lockdown imposed to deal with the COVID-19 epidemic, people are eager to travel. However, the loss of income due to job losses due to lockdown, loss of income due to salary cuts and increase in expenditure due to high rate of inflation may prove to be a reduction.
After recovering normally from a job and full pay in an epidemic situation, financial prospects may be better, but a reduction in savings during a financial crisis may result in a lack of funds for travel planning. So, people are looking for ways to finance their travel without missing opportunities.
The subtleties of a travel industry have created a demand for a TNPL, which is more specific to the needs of the general BNPL vs. the travel industry.
“Travelers’ expectations are shifting from traditional lending mode to alternative and simple digital payment solutions. That said, a BNPL’s one-size-fits-all approach cannot be replicated for complex products like travel with its own finesse, ”said Abhilasha Negi, co-founder, Sankash, a TNPL expert.
Here’s how the needs of the travel industry differ from the retail market:
Travel is a complex and highly customized product
There are three basic steps in the travel buying cycle:
- First, it begins with dreaming about an experience;
- Second, explore options with different travel merchants to identify the dream package;
- Third, finally booking for the dream vacation.
It can take anywhere from 2-3 days to a week for a traveler to plan and finalize his or her choice of vacation, including the highly sensitive fluctuations in the price of the final product. In addition, each holiday needs to be customized according to the needs of the traveler. The complexity of the product and the high level of customization make it possible to shop through offline merchants rather than online. Therefore, it requires a special TNPL payment solution, which is sensitive to the needs of travelers.
This is the opposite of a retail, e-commerce product that is only available with a few clicks. TNPL considers the finesse of customization as part of the underwriting criteria for each holiday package.
The travel industry is bizarre and makes credit assessments difficult for lenders
Unlike any other industry, the travel industry has no specific MRP. It has a complex distribution of services and there is no OEM in the segment All of these factors make it difficult for any lender to assess the credit risk of a travel product purchased by a traveler. TNPLs on the other hand enable risk assessment based on travel data points to analyze risk in each case.
“Risk assessment with travel data points other than financial data points alone makes credit checks much better than regular BNPLs based solely on financial data. SanKash combines all B2B pricing in a way that makes it easy to determine any additional or lower pricing, enabling better risk assessment, “said Akash Dahiya, co-founder of SanKash.
The average ticket size for travel is large
Typically BNPLs finance small ticket sized retail products for a short period of time (up to 90 days) ranging from Rs 1,000 to a maximum of Rs 50,000. Where, even for a domestic destination of two families, the average holiday amount is more than Rs 70,000. Therefore, the KYC and assessment requirements for travel differ which can meet a particular TNPL and offer payment up to 36 months term so that they can spread the cost of big tickets, especially international travel which is more than Rs 1.25 lakh. Average
Traveler’s financial purchasing behavior is different from other industries
In the wake of the epidemic, many customers want to travel, but pay for it within a specified period of time, instead of paying a huge single penny before the trip. Given that ticket size is large, and booking costs are time sensitive, travelers prefer to book at a lower price. It can be enabled by specialized TNPL which can easily evaluate price mark-ups on average cost over the general BNPL.
“Just as a super-specialist can meet a patient’s exact needs as opposed to a general practitioner, TNPL can provide a more accurate credit risk assessment and therefore a higher economic interest rate than a retail-based generic BNPL,” Dahiya said.