Interviewed by Anisha Saha, MBR Team

Pathao PayLater is Bangladesh’s first Buy Now Pay Later (BNPL) solution, which provides a flexible payment option for consumers to make purchases and pay them at a future date.

MBR: Pathao is already a widely successful and established digital services platform in Bangladesh. Could you please tell us how did you come up with the idea of bringing the global practice of BNPL in Bangladesh?

Fahim Ahmed: Bangladesh has been one of the fastest-growing economies globally over the past decade. Our consumers, paradoxically, are also among the most credit-constrained; less than 1% of our population owns a credit card, making Bangladesh one of the most underpenetrated markets for consumer credit in South and Southeast Asia.

Urban millennials, the segment of our population that is growing the fastest, are the most underserved group by traditional banks and financial institutions. We have over 25 million urban millennials living in the largest cities in Bangladesh. Their income is rising, and they are spending it online.

The majority of Pathao’s user base, over 8 million, are urban millennials (students and young professionals). They take rides, order food and receive packages through Pathao for multiple times each month. They also face cash constraints as they have to wait for their salary or allowance to arrive.

Pathao is uniquely positioned to cater to our user base’s unaddressed need for consumer credit. We can leverage users’ transaction history on our platform and utilize our data analytics capabilities to assess the risk of enabling flexible payment options for our consumers.

MBR: Pathao is the first digital service platform to bring the “pay later” feature into the Bangladeshi market. Please share with us the process of operating the “pay later” feature? As you are providing the service now and getting the money after a certain period of time, how are you managing your cash flow?

Fahim Ahmed: Pathao PayLater provides users with a 15-day initial spending limit of BDT 2,000 (USD 23), which is replenished upon repayment. They get 30 days after that to repay at no additional cost. A late charge of up to BDT 200 (or 10%) is applicable if they fail to repay in time. Delinquent users are locked out of the Pathao platform until they fully refund the dues. We initially have rolled out PayLater to the most loyal and regular users of Pathao Food.

PayLater performance has exceeded our expectations. NEW INITIATIVE Interviewed by Anisha Saha, MBR Team Pathao PayLater is Bangladesh’s first Buy Now Pay Later (BNPL) solution, which provides a flexible payment option for consumers to make purchases and pay them at a future date. 20 of 32 Over 21% of the users who have access to PayLater have used the feature at least once. As a result, we have experienced a significant positive impact on our business. The spending per PayLater user has gone up by 27% since their adoption. The number of orders per week has increased by 35%. The week-on-week retention has increased by 40 percentage points.

We have also seen excellent repayment rates. Over 85% of the users have repaid on time. The delinquency rate (overdue by 30 days or more) is in the middle of singledigit in line with the best-in-class BNPL providers in the region. A few things have helped us to keep delinquency rates very low:

• Data-driven process of selecting users based on their transaction history (e.g. selecting more loyal users and for whom continued access to Pathao services is valuable)
• Targeting the low ticket size with high-frequency cases where the risk of default is lower (e.g. food, essentials, transportation - rather than more elective purchases),
• Designing the repayment tenor to match the used case (i.e. 30 day period to serve users who are short on cash now but have visibility into their incoming salary or allowance)
• Disciplined enforcement of a policy of suspending delinquent users.

MBR: Pathao has a sizeable population of young users for its ride-hailing, food delivery and logistics services. Please share us your views about the long term goals of this feature of “pay later”? Will you bring the idea in to other business units or will you stick to only food? As a first mover, can you please tell us how do you plan on capturing the market?

Fahim Ahmed: Our initial results have given us strong validation, and proofs of the concept. We are now scaling up Pathao-PayLater. Here’s what we are doing:

• We have expanded this feature to include more users. Now, about 100,000 users have access to PayLater.
• We have increased the spending limit. Some users now have a spending limit of up to BDT 4,000.
• We have introduced PayLater for Rides. We rolled out this feature for Rides in mid of January
• We have planned to expand PayLater access to other Pathao services, including to merchants for whom we are providing delivery services.

MBR: Bangladeshi consumers now get to enjoy the benefits of the buy now, pay later phenomenon thanks to Pathao’s newest initiative. What are the challenges that Pathao has to face in order to bring the “Pay Later idea” into the market?

Fahim Ahmed: A successful BNPL model relies upon three components: data & analytics, distribution and capital. Pathao, Bangladesh’s most prominent digital services platform, has a core foundation of engaged users and an ecosystem of daily use cases. This creates access to data, which can be analyzed to assess the spending capacity of users. Our platform also gives us distribution. Further, as one of Bangladesh’s most highly funded startups, Pathao can access global capital to address this vast opportunity. We are also exploring partnerships with local financial institutions to extend consumer credit to Pathao-PayLater’s user base.

 However, the scale of opportunity is far greater than data and distribution, but the capital has been far unlocked. Today, only a tiny (but growing) portion of the digital users spends on a digital platform. An even greater part of the target group of users is currently offline - digital commerce represents less than 1% of total consumer spending. Local banks and financial institutions are still at a very early stage of underwriting consumer credit risk. Finally, the regulatory framework for digital financial services is still developing.

Bangladesh’s lack of access to consumer credit is a real and compelling problem. BNPL can be an effective tool in solving this problem. The challenge, however, lies in how BNPL can address the credit gap in a scalable and sustainable manner.

The arc of change is not linear. We are at an inflexion point, where increased digital adoption and enabling regulatory framework can unlock credit for the aspiring young consumers of Bangladesh.