Zerodha's Kamath Turns Down BNPL Financial Product: Know Why

Zerodha-online broking firm's founder Nitin Kamath has turned down the 'Buy now pay later or BNPL' scheme and called it as the worst financial instrument for retail investor class. Further, he goes on to explain why this lending business of BNPL may not be the correct way of investment for retail customers via a series of tweets.

Zerodha's Kamath Turns Down BNPL Financial Product: Know Why

"But given high customer acquisition costs for many brokers, what worries me is if someone launches a buy now pay later type of product for investing, it will end up pushing everyone else to start. Using this as a hook to generate revenue will not be right for the customers," Nithin Kamath tweeted.

Further he goes on to say that buying shares by leveraging at around 15 percent and then upon drawdowns facing the risk of liquidation shall be "probably the worst financial product for retail investors". "Hoping that the broking industry like others doesn't morph into a lending business to recover the very high cost of acquiring a customer," he adds.

His comments came at a time when markets on Monday plunged sharply taking the headline indices down by close to 2 percent.

"Unlike the previous bull runs, there isn't a lot of leverage in the system this time. Stocks are mostly bought with full money upfront. So when there are drawdowns in the market on days like today, retail investors aren't forced to liquidate, which also increases volatility," Zerodha founder posted.

"Credit goes to SEBI & also all of us new-age online brokers who haven't pushed customers to borrow and buy while placing orders. If platforms enabled greed by nudging users to borrow to buy more quantities, customers would ignore the risks of margin funding (MTF)," he added.

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