BNPL (Buy Now, Pay Later)

Buy Now, Pay Later (BNPL) is a short-term consumer credit arrangement that allows individuals to purchase goods or services immediately and defer payment through instalments over a specified period. In the fields of banking and finance, BNPL represents a modern credit innovation that combines digital payments with simplified lending. Within the Indian economy, BNPL has gained prominence due to rapid digitalisation, growth of e-commerce, and increasing demand for flexible and accessible credit solutions.
The rise of BNPL reflects structural changes in India’s financial system, including widespread smartphone usage, expansion of online marketplaces, and the growing role of fintech firms. Unlike traditional credit cards or personal loans, BNPL products are designed to be easy to use, quick to access, and integrated seamlessly into digital payment platforms, making them particularly attractive to young consumers and first-time borrowers.

Concept and Working Mechanism of BNPL

BNPL functions as a point-of-sale financing option offered at the time of purchase, both online and offline. When a consumer chooses BNPL, the service provider pays the merchant in full, while the consumer repays the amount in instalments over a short tenure.
Key characteristics of BNPL include:

• Digital and paperless onboarding processes.
• Short repayment tenures, generally ranging from a few weeks to a few months.
• Fixed and transparent instalment schedules.
• Limited or zero interest for timely repayments, with penalties for defaults.

Revenue for BNPL providers is generated through merchant fees, late payment charges, or interest on extended repayment plans. In India, BNPL services are often offered through partnerships between banks, non-banking financial companies, and fintech platforms.

Evolution of BNPL in the Indian Financial System

The development of BNPL in India is closely linked to the expansion of digital payments and online commerce. Early forms of BNPL appeared as post-paid wallet services, which later evolved into structured credit products embedded in payment applications and merchant websites.
Regulatory guidance from the Reserve Bank of India has played a crucial role in shaping BNPL as a responsible credit product. Over time, regulators have emphasised transparency, customer consent, and alignment with digital lending norms, leading to greater formalisation of BNPL within the financial system.
The growth of BNPL accelerated in the post-pandemic period, driven by increased online spending, changing consumption patterns, and the need for short-term liquidity.

Role of BNPL in Consumer Finance

BNPL has significantly influenced consumer finance by providing easy access to short-term credit without the complexity of traditional lending products. For individuals without credit cards or established credit histories, BNPL often serves as an entry point into formal borrowing.
Its role in consumer finance includes facilitating everyday purchases, smoothing household cash flows, and enabling planned spending through instalments. The clarity of repayment schedules and absence of revolving interest structures make BNPL appealing to consumers seeking predictable financial commitments.

Impact on Banking and Financial Institutions

For banks and financial institutions, BNPL offers opportunities to expand retail lending portfolios and acquire new customer segments. Collaborations with BNPL providers allow banks to leverage transaction data for credit assessment and cross-selling of financial products.
At the same time, BNPL introduces competitive pressures by acting as an alternative to credit cards and small personal loans. This has encouraged traditional financial institutions to innovate, improve digital credit delivery, and adopt more customer-centric approaches.

BNPL and the Indian Digital Economy

In the broader context of the Indian economy, BNPL supports consumption-driven growth by enhancing purchasing power without immediate cash outflows. It is particularly relevant in sectors such as e-commerce, consumer electronics, education, travel, and healthcare services.
BNPL contributes to the digital economy by promoting non-cash transactions, increasing merchant conversion rates, and strengthening the integration of finance with digital platforms. Global institutions such as the World Bank have recognised the role of innovative digital credit models in expanding access to finance in emerging economies, provided appropriate regulatory safeguards are in place.

Financial Inclusion and Credit Accessibility

BNPL plays a role in financial inclusion by extending small-ticket credit to individuals who may be underserved by traditional banking channels. The use of digital onboarding and alternative data allows BNPL providers to reach first-time borrowers and those with limited credit histories.
Responsible use of BNPL can help consumers build a formal credit record, improving their future access to loans and financial services. However, the inclusive benefits depend on transparent reporting to credit bureaus and effective consumer education.

Risks, Criticism and Regulatory Concerns

Despite its advantages, BNPL has raised concerns related to over-borrowing, inadequate credit assessment, and consumer protection. The ease of access may encourage impulsive spending, leading to repayment difficulties, especially among young users.
Major concerns include accumulation of multiple BNPL obligations, lack of awareness of penalties, data privacy risks, and potential increases in default rates. Regulators have responded by strengthening disclosure requirements, emphasising responsible lending practices, and ensuring that BNPL products fall within the broader framework of consumer credit regulation.