Buy Now Pay Later
Buy Now Pay Later (BNPL) is a short-term financing product embedded at the point of purchase that allows consumers to receive goods or services immediately and repay in instalments or after a deferred period, with zero-cost EMI or interest-free short windows offered to attract users, though RBI has expressed concerns about regulatory arbitrage and over-extension of credit.
BNPL products reached Indian consumers primarily through e-commerce platforms and fintech companies in the late 2010s and early 2020s. Platforms such as Slice, Uni, LazyPay, ZestMoney, and Paytm Postpaid built consumer lending businesses by integrating credit approval at the checkout stage of partner merchants, giving consumers a frictionless credit experience that was fundamentally different from applying for a credit card or personal loan. Approval decisions were made in seconds using alternative data and bank statement analytics, with credit lines typically ranging from Rs 5,000 to Rs 2 lakh.
The consumer proposition was straightforward: use now, pay in 30 days interest-free, or split into three equal instalments with zero interest (where the merchant bore the discount cost). For young professionals and students who did not qualify for credit cards or preferred to avoid credit card minimum payment traps, BNPL offered structured, visible credit. For merchants, BNPL increased average order values and conversion rates, justifying the merchant discount rate they paid to the platform.
RBI's regulatory response to BNPL was a significant development in 2022. The central bank clarified that prepaid payment instruments (PPIs) — essentially wallets — could not be loaded with borrowed funds, a rule that effectively prohibited the then-popular model of loading a Slice or Uni card with borrowed money and using it as a Visa/Mastercard. This forced BNPL providers to restructure as either credit card issuers (requiring a banking partnership and RBI approval) or NBFC lenders (subject to digital lending guidelines), meaningfully increasing compliance burdens.
RBI's concern was multifaceted. First, the easy availability of BNPL credit to young, first-time borrowers with thin credit histories risked creating a generation of over-leveraged consumers who used BNPL across multiple platforms simultaneously without any single platform seeing the full credit exposure. Second, the merchant-subsidised zero-interest model obscured the true cost of credit, making it difficult for consumers to evaluate whether they were taking on debt responsibly. Third, the rapid growth of BNPL among smartphone users in Tier-2 and Tier-3 cities without formal financial education created consumer protection risks.
Following regulatory tightening, several BNPL companies restructured: ZestMoney shut down operations in 2023 after its acquisition fell through, Slice merged with North East Small Finance Bank, and LazyPay continued under PayU as an NBFC product. The surviving model integrated BNPL into regulated lending frameworks, with full KYC, credit bureau reporting, and standardised cost disclosures, making it structurally similar to a personal loan with a shorter tenure rather than the frictionless informal credit it had previously resembled.