BNPL Models

Buy Now, Pay Later (BNPL) models refer to the different structural and operational frameworks through which deferred payment and short-term credit services are offered to consumers. In banking and finance, BNPL models determine how credit is originated, funded, regulated, and repaid. Within the Indian economy, BNPL models have evolved in response to regulatory oversight, digital infrastructure, consumer behaviour, and the growing role of fintech firms. Understanding these models is essential to assess their impact on financial stability, consumer protection, and economic growth.
BNPL models in India are shaped by the coexistence of banks, non-banking financial companies (NBFCs), fintech platforms, merchants, and digital payment systems. Unlike a single uniform structure, BNPL operates through multiple models that vary in risk-sharing, revenue generation, and regulatory treatment.

Conceptual Framework of BNPL Models

At its core, a BNPL model facilitates deferred payment for a consumer while ensuring immediate settlement for the merchant. The model defines who provides the credit, who bears the credit risk, how revenues are earned, and how repayments are enforced.
In the Indian financial system, BNPL models are influenced by regulatory requirements, especially those governing digital lending, consumer credit, and payment intermediaries. As a result, BNPL models often integrate formal lending entities with technology-driven platforms to balance compliance and innovation.

Merchant-Funded BNPL Model

In the merchant-funded BNPL model, the cost of offering instalment-based payments is borne primarily by the merchant rather than the consumer. The BNPL provider pays the merchant upfront, minus a merchant discount fee, and the consumer repays the full purchase amount over time without interest.
This model is commonly used to increase sales conversion rates and average order values, particularly in e-commerce and retail sectors. For merchants, the cost is justified by higher customer acquisition and retention. For consumers, the absence of interest charges makes this model attractive and transparent.
In the Indian context, merchant-funded BNPL is widely adopted for short-tenure purchases and promotional campaigns, especially among digitally savvy urban consumers.

Consumer-Funded BNPL Model

Under the consumer-funded BNPL model, the consumer bears the cost of financing through interest charges or fixed fees, particularly when longer repayment tenures are involved. The BNPL provider earns revenue directly from the borrower, similar to traditional consumer lending.
This model aligns closely with established banking and NBFC credit structures. It is often used for higher-value purchases such as electronics, education services, or healthcare expenses. From a financial perspective, this model requires stronger credit assessment and risk management mechanisms.
In India, consumer-funded BNPL models are increasingly regulated as digital loans, bringing them closer to formal retail credit products.

Bank-Led BNPL Model

In the bank-led BNPL model, a bank acts as the primary lender, while the BNPL platform functions as a technology and distribution partner. The bank provides funds, assumes credit risk, and ensures regulatory compliance, while the fintech partner manages customer onboarding, user interface, and transaction processing.
This model benefits from the balance-sheet strength, credibility, and regulatory experience of banks. It also allows banks to reach new customer segments, particularly younger and digitally active users, without building standalone BNPL platforms.
Regulatory supervision by the Reserve Bank of India has encouraged this model by emphasising lender accountability and transparency in digital credit delivery.

NBFC-Led BNPL Model

In the NBFC-led BNPL model, a non-banking financial company acts as the lender, either independently or in partnership with a fintech platform. NBFCs provide flexibility in credit structuring and faster product innovation compared to traditional banks.
This model has been prominent in India due to the active role of NBFCs in retail lending and financial inclusion. NBFC-led BNPL often targets consumers with limited credit histories, using alternative data and digital underwriting methods.
However, this model also carries higher credit risk and requires careful regulatory oversight to prevent excessive leverage and consumer exploitation.

Fintech-Led Platform Model

The fintech-led platform model positions the BNPL provider primarily as a technology intermediary rather than a lender. The platform integrates merchants, consumers, and regulated lenders, facilitating transactions while outsourcing credit provision to banks or NBFCs.
This asset-light model allows rapid scaling and innovation. Revenue is generated through platform fees, merchant commissions, and data-driven services. In the Indian economy, this model has gained traction due to its adaptability and low capital requirements.
Regulators increasingly require clear disclosure of the underlying lender to ensure consumer awareness and accountability.

Postpaid Wallet-Based BNPL Model

Postpaid wallet-based BNPL is an extension of digital wallets, allowing users to make purchases and settle the total amount at a later date. This model typically involves short credit cycles, such as monthly billing, and is used for low-value, high-frequency transactions.
In India, this model has served as an entry point to formal credit for first-time borrowers. While convenient, regulators have emphasised that wallet-based BNPL should comply with digital lending norms to avoid regulatory arbitrage.

Revenue and Risk-Sharing Structures

BNPL models differ significantly in how revenue and risk are distributed among stakeholders. Revenue sources include merchant discount rates, consumer interest or fees, late payment penalties, and data monetisation. Risk-sharing arrangements determine whether credit losses are absorbed by banks, NBFCs, fintech platforms, or merchants.
In the Indian financial system, there is a gradual shift towards clearer risk allocation and stronger reporting standards, reducing systemic vulnerabilities.

Economic Significance of BNPL Models in India

BNPL models influence consumption behaviour, credit expansion, and digital financial inclusion. By offering flexible payment options, they stimulate short-term demand and support sectors dependent on discretionary spending.
From a macroeconomic perspective, well-regulated BNPL models contribute to financial deepening and formalisation. International institutions such as the World Bank have highlighted the importance of responsible digital credit models in emerging economies, noting their potential to expand access while maintaining financial stability.

Challenges and Regulatory Considerations

Despite their benefits, BNPL models raise concerns regarding over-leveraging, consumer protection, and regulatory consistency. Multiple BNPL accounts across platforms may obscure a borrower’s true indebtedness, increasing default risk.
Indian regulators have responded by strengthening disclosure norms, mandating direct lender identification, and aligning BNPL with broader digital lending frameworks. These measures aim to ensure that innovation does not compromise consumer welfare or systemic stability.