Introduction
Buy Now Pay Later (BNPL) products — short-term, interest-free (or low-interest) instalment credit typically offered at the point of sale — have grown at extraordinary speed in India’s consumer digital economy. From e-commerce checkout financing through Simpl, LazyPay, or ZestMoney to in-app purchase credit on Swiggy and Myntra, BNPL has become a default payment option for tens of millions of young Indian consumers who are underserved by traditional credit cards and are attracted to the simplicity and apparent “free credit” proposition that BNPL offers.
The regulatory gap that has allowed BNPL to proliferate is structural. BNPL products, depending on their structure, may fall under the definition of credit as regulated by the RBI under the Banking Regulation Act and RBI Act — or may be characterised as deferred payment arrangements, prepaid payment instruments, or merchant credit that do not attract the same regulatory requirements. Many BNPL providers have exploited this ambiguity to offer consumer credit at scale without the compliance obligations — credit reporting, fair practices, customer disclosure, and collection standards — that apply to regulated credit institutions.
The resulting consumer harm — particularly for financially inexperienced young borrowers who do not understand the product’s true cost or the consequences of default — has brought BNPL to the attention of regulators in India and globally. Whether the existing regulatory framework is adequate, and what specific interventions are required, are the central questions this article addresses.
Legal Framework
BNPL products in India do not fit neatly into any existing statutory category. If the BNPL provider is an NBFC, it is regulated under the RBI Act 1934 and subject to the RBI’s master directions on NBFC operations, which include credit disclosure, fair practices, and customer service standards. If the BNPL provider is a bank (through a co-branded product with a fintech partner), banking regulation applies.
However, many BNPL providers are not NBFCs — they are technology companies that have structured their products to avoid NBFC registration by routing the credit through a partner bank or NBFC while retaining the customer-facing technology and user experience. In this structure, the technology company (the “BNPL platform”) is characterised as a Lending Service Provider (LSP) under the Digital Lending Guidelines rather than a lending entity, and the regulatory obligations fall on the NBFC or bank partner rather than on the customer-facing entity.
The Consumer Protection Act 2019 and the rules thereunder provide a parallel regulatory framework focused on unfair trade practices and product liability. The Central Consumer Protection Authority (CCPA) has jurisdiction over unfair trade practices in digital commerce, which would in principle cover misleading advertising of BNPL products — for example, advertising that emphasises “zero cost EMI” without adequately disclosing late payment penalties or the effect of delayed payment on credit bureau scores.
The Credit Information Companies (Regulation) Act 2005 and the RBI’s directions on credit information require regulated entities to report all credit facilities to credit bureaus. Whether BNPL transactions — which are often short-duration deferred payments rather than formal loan agreements — must be reported to credit bureaus has been an area of regulatory ambiguity that the RBI has progressively addressed, requiring NBFC partners in BNPL arrangements to report transactions.
Contemporary Issues and Analysis
The affordability assessment gap is the most significant consumer protection concern. Traditional consumer credit — personal loans, credit cards — requires regulated entities to conduct affordability assessments, evaluating whether the borrower can service the credit without undue hardship. BNPL products, even those operated by regulated entities, have often bypassed meaningful affordability assessment on the grounds that the credit amounts are small and the tenure is short. The cumulative effect of multiple BNPL facilities across different providers — each individually small but collectively significant relative to the borrower’s income — is a debt accumulation pattern that has driven significant consumer distress.
The credit bureau reporting inconsistency compounds this: if a borrower holds BNPL facilities with three providers, only some of whom report to credit bureaus, the bureau-based affordability assessment conducted by each provider misses the other facilities. This information asymmetry enables over-indebtedness.
The late payment penalty structure is another area of regulatory concern. Many BNPL products advertise as “zero cost” or “interest free” while imposing significant late payment penalties — sometimes effectively equivalent to very high annualised interest rates — that are disclosed only in the fine print. The Key Fact Statement requirement under the Digital Lending Guidelines requires APR disclosure, but the KFS requirement applies to regulated entities and their LSPs — not to all BNPL products in the market.
The merchant incentive structure creates a potential conflict of interest that is absent in traditional consumer credit. BNPL providers earn merchant discount fees from the merchants at the point of sale — meaning the BNPL product is partially subsidised by the merchant’s marketing budget. This creates an incentive for BNPL providers to maximise adoption rather than to conduct conservative affordability assessment.
Comparative and International Perspective
The UK’s Financial Conduct Authority conducted a major review of BNPL regulation (the Woolard Review, 2021), concluding that BNPL products were exempt from the Consumer Credit Act 1974’s requirements by virtue of the short-term exemption, and that this exemption was no longer appropriate given the scale and risk profile of the BNPL market. The UK government proposed legislation requiring FCA authorisation for BNPL providers and mandating affordability assessments — legislation that was still pending as of 2025 following delays in the legislative programme.
Australia’s Financial Services Royal Commission had examined BNPL and the government enacted a BNPL Code of Practice in 2022, subsequently moving toward mandatory hardship assistance requirements. The Australian Securities and Investments Commission (ASIC) found that approximately 21% of BNPL users had cut back on essential spending to make BNPL payments — evidence of significant consumer harm.
The United States Consumer Financial Protection Bureau (CFPB) issued interpretive guidance in 2022 classifying most BNPL products as credit cards for regulatory purposes, potentially bringing them within the Truth in Lending Act’s disclosure requirements.
Practical and Policy Implications
For BNPL providers, the direction of travel in India — more consistent with international regulatory trends — is toward mandatory affordability assessment, comprehensive credit bureau reporting, and standardised cost disclosure. Providers who have built business models on the assumption of continued regulatory permissiveness are exposed to significant compliance cost and business model disruption.
For merchants, BNPL remains an attractive sales tool that increases conversion rates and average order values. The regulatory trend toward treating BNPL as consumer credit will likely narrow the “free credit” proposition but will not eliminate the product category.
Suggestions and Reforms
The RBI should issue specific BNPL guidelines under the Digital Lending framework that apply to all entities — whether NBFCs, bank partners, or their LSP platforms — involved in BNPL provision. These guidelines should require mandatory individual and aggregate affordability assessment (requiring BNPL providers to check all existing BNPL facilities at other providers through credit bureaus), comprehensive credit bureau reporting for all BNPL transactions above Rs. 500, and standardised KFS disclosure including the effective cost of late payment.
The CCPA should issue sector-specific guidance on BNPL advertising standards, prohibiting “zero cost” characterisation unless the product genuinely involves zero cost to the consumer in all scenarios, including late payment.
Conclusion
BNPL’s growth in India reflects both genuine consumer demand for flexible, accessible short-term credit and a regulatory gap that has allowed products to proliferate without the accountability mechanisms that protect consumers from their own over-optimism. The regulatory frameworks that govern BNPL’s closest relatives — personal loans, credit cards — impose meaningful consumer protection requirements for good reason. Extending equivalent protections to BNPL, calibrated appropriately for the product’s characteristics, is both legally achievable and commercially manageable. The cost of inaction — a consumer debt crisis concentrated in the demographically significant young urban population — would be far greater.
