BNPL (Buy Now, Pay Later)

Buy Now, Pay Later (BNPL) is a popular fintech-driven payment model that allows consumers to purchase goods or services immediately and pay for them over time, often in interest-free installments.

BNPL has gained traction especially in e-commerce checkouts and retail, as an alternative to credit cards. Under a typical BNPL arrangement, a customer pays a part of the purchase (or sometimes nothing) at checkout and agrees to pay the remaining amount in a few equal installments (e.g. over 2–3 months). Many BNPL plans charge zero interest for the short-term period, making them attractive to consumers. BNPL providers make money through merchant fees (retailers pay a percentage to offer BNPL and boost sales) or late fees/interest for longer-term plans.

Types of BNPL models

Some BNPL services require an upfront down-payment (e.g. pay 25% now, 75% in 3 installments), while others allow full deferral with the first payment only after a few weeks. Short-term BNPL (typically 15 days to 3 months) is often interest-free, whereas longer-term financing (6–12 months or more) may involve interest or processing fees. BNPL can be offered in two main ways:

• At online checkout: e-commerce platforms partner with BNPL providers; the option appears alongside credit/debit cards and UPI. For example, Amazon Pay Later or Flipkart’s Pay Later let approved customers split their bills into next-month payment or EMIs.
• Card-based or app-based BNPL: Some fintechs issue a BNPL card or wallet that can be used like a credit instrument. For instance, a prepaid card that is topped up with an instant credit line by the BNPL provider, which the user then spends and later repays.

Regulatory perspective and risks

In India, BNPL services initially operated in a gray area of regulation. Many BNPL providers partnered with NBFCs or banks to actually fund the loans, but from a customer viewpoint BNPL felt like a seamless payment option rather than a loan. This led to regulatory concerns that BNPL was essentially unsecured lending disguised as a payment method, potentially bypassing consumer lending rules. There is a risk of customers accumulating debt through multiple BNPL plans without the rigor of formal loans (no credit card-style monthly statements or clear disclosures). Studies have found BNPL users might take on more debt than they can handle because the product encourages easy credit for even those with limited credit history. Key risks include:

• Overextension and debt traps: Since many BNPL plans aren’t immediately reported to credit bureaus, users might stack purchases across providers. Small installment plans can add up, leading to affordability issues or missed payments.
• Lack of transparency in fees: Some BNPL schemes advertise “no interest” but have late fees or convert to hefty interest if not paid on time. Without clear disclosure, consumers may misunderstand the costs.
• Regulatory arbitrage: BNPL firms leveraged loopholes to operate like credit cards without following credit card regulations (e.g. not requiring full KYC or avoiding lending caps).

RBI’s clarification on BNPL

In June 2022, the Reserve Bank of India prohibited non-bank Prepaid Payment Instrument (PPI) issuers from loading credit lines onto wallets or prepaid cards. RBI clarified that funding PPIs through credit facilities is not allowed under its PPI Master Directions and must be stopped immediately. This directly impacted BNPL providers that used wallets or prepaid cards to extend credit. RBI’s intent was to prevent circumvention of regulated lending norms and ensure that loans are disbursed only into bank accounts with proper KYC.
RBI has since closely monitored BNPL models, expressing concern over their unregulated nature. The regulator views BNPL as a form of lending and expects providers to comply with lending regulations and fair practice norms. RBI officials have warned that unchecked BNPL could lead to consumer over-indebtedness and regulatory arbitrage. As a result, there are expectations that BNPL may be formally regulated, either by bringing it under existing digital lending guidelines or by creating a specific NBFC-BNPL category to strengthen risk management and consumer protection.