Can Buy Now Pay Later Work in India?

BNPL (Buy Now Pay Later) is steadily growing to be one of the go-to financial options in India's dynamic market. With a projected market revenue of US$3,097.7 million by 2033, the BNPL sector in India is expected to grow at an impressive rate (CAGR) of 31.6% from 2025 to 2033. With consumers seeking more flexibility in how they spend, BNPL offers an easy alternative to traditional payment methods. 

In this blog, we'll break down how BNPL works in India, highlighting its differences from credit cards and why it’s gaining popularity. We'll also dive into how BNPL accounts are created, their advantages for both consumers and merchants, and the potential risks and regulatory hurdles. 

Key Takeaways

• Flexible Payment Options: BNPL offers a significant advantage over traditional credit cards by allowing interest-free installment payments, making it an attractive choice for consumers looking for manageable financial solutions.
• Market Opportunity: With low credit card penetration in India (just 5-6%), BNPL services are filling a critical gap, especially in Tier 2 and Tier 3 cities, where traditional credit is limited.
• E-commerce Synergy: The integration of BNPL options in e-commerce platforms boosts conversion rates, increases average transaction values, and helps merchants reduce cart abandonment.
• Consumer Preferences: Around 70% of consumers prefer zero-interest BNPL options, with millennials and Gen Z leading the adoption, particularly for non-essential, aspirational purchases.

How BNPL Works in India

The process begins with creating an account with a BNPL provider. Thanks to paperless procedures and the use of eKYC with Aadhaar, account creation and approval are lightning fast, even for users without an established credit history. Let’s take a look at the steps of the BNPL working process. 

Step 1: Account Creation and eKYC

The process begins with the user downloading a BNPL app and creating an account. During this step, users provide basic details such as their name, contact information, and bank details. To verify identity, BNPL providers use eKYC (Electronic Know Your Customer) with Aadhaar, enabling instant and secure identity verification.

Step 2: Eligibility Check and Credit Limit Assignment

Once the account is set up, the BNPL provider performs a soft credit check to assess the consumer's creditworthiness. This check is to analyze spending behavior and past payment history. Based on this assessment, a credit limit is assigned, which represents the maximum amount a user can spend using BNPL for their purchases.

Step 3: Initiating the Purchase

The user proceeds to make a purchase on an online platform that supports BNPL. During checkout, the BNPL option is selected as the payment method. The user is then asked to confirm the credit limit and the repayment options (either an interest-free installment plan or a deferred payment plan). Once confirmed, the transaction is completed, and the user can immediately access their purchased item or service.

Step 4: Transaction Processing and Merchant Payment

Once the user has completed the purchase using BNPL, the provider pays the merchant the full amount upfront, minus any transaction fees. This payment is made immediately or within a short time frame. For the merchant, this model ensures fast payment for the product or service sold, while the consumer enjoys the flexibility of paying over time.

Step 5: Repayment Schedule

After the transaction is approved, the user is required to repay the amount in installments as per the selected repayment plan. Most BNPL services offer interest-free payment options with fixed installments over a specific period (e.g., 3, 6, or 12 months).

Some plans may allow for deferred payments where users pay the full amount after a set period. Repayments can be made via UPI, linked bank accounts, or debit/credit cards.

Step 6: Payment Confirmation and User Notifications

Upon successful payment, both the consumer and merchant receive confirmation. The consumer's BNPL account is updated with the remaining balance, and they will be notified about upcoming payments. These notifications help users track their repayment schedule and avoid missing payments.

Step 7: Late Fees and Penalties (If Any)

If the consumer fails to make payments on time, BNPL providers may impose late fees or penalties. This could affect the user’s credit score or limit their ability to access further BNPL services. 

Some providers may offer grace periods or extended payment options in case of genuine delays, but users should ensure they adhere to the repayment terms to avoid extra charges.

Step 8: Repayment and Account Closure

Once the repayment term is completed, the consumer has fully paid off their balance, and the BNPL account is closed for that transaction. The user may then opt to make another purchase through BNPL, provided their credit limit allows it.

Step 9: Regulatory and Compliance Check

BNPL providers are subject to Indian financial regulations and must comply with guidelines issued by the Reserve Bank of India (RBI). These include transparency in terms, conditions, fees, and interest rates, while also adhering to data privacy laws.

This seamless process has created a perfect storm for BNPL adoption across India. Several underlying market forces are converging to create an ideal environment for BNPL services to flourish.

What are the Growth Drivers of BNPL in India?

India's Buy Now Pay Later (BNPL) market is witnessing remarkable growth, with an estimated USD 21.95-30.88 billion by the end of 2025. It is also projected to reach USD 34.31-78.50 billion by 2030-2032. There are several key factors driving this explosive growth, making BNPL an increasingly popular financial tool across the country.

1. Demographics: The Indian BNPL market is heavily driven by a young, tech-savvy population with growing purchasing power.

• Gen Z (18-25) holds a significant 39.7% market share, with a projected AGR of 23.6% through 2030.
• Millennials (26-35) make up about 40% of the market’s Gross Merchandise Value (GMV), with young professionals seeking flexible payment options.

2. Infrastructure: Digital Payment Revolution: India’s digital payment ecosystem, especially the growth of UPI, has had a transformative impact on BNPL adoption.

• UPI Integration: Over 124.83M UPI-credit transactions were processed in January 2025, facilitating seamless real-time approvals.
• Digital Transaction Dominance: Digital credit card transactions now make up 85% of the market, and BNPL contributes to 83.3% of online revenue in 2024.
• Smartphone Penetration: With high internet and smartphone penetration, more consumers across India now have easy access to digital wallets and BNPL services.

3. Limited Traditional Credit Access: The limited reach of traditional credit products, especially credit cards, opens a significant opportunity for BNPL.

• Credit Card Penetration: India’s credit card penetration stands at just 5-6%, compared to 65% in the US, creating a large gap in access to credit.
• BNPL User Potential: With around 100 million potential BNPL users by 2026, the underserved market in Tier 2 and Tier 3 cities presents a massive opportunity for alternative credit solutions.

4. Consumer Behavior: Preference for Flexibility: Consumers increasingly favor flexible payment options that allow for manageable installments rather than lump-sum payments.

• Higher Average Order Value: BNPL options can boost the Average Order Value (AOV) by up to 30%.
• Zero-Interest Preference: Around 70% of consumers prefer zero-interest payment plans, making BNPL a highly attractive option.
• Income-Based Adoption: Middle-income consumers show the highest adoption rate (64.29%), with BNPL offering crucial credit access to low-income segments.

5. Technology Integration: E-commerce Synergy: The integration of BNPL with major e-commerce platforms has further fueled its growth.

• Platform Integration: Platforms like Amazon Pay Later and Flipkart Pay Later have driven significant BNPL adoption.
• Merchant Benefits: BNPL helps merchants reduce cart abandonment, increase conversion rates, and raise transaction values while lowering Cash on Delivery (COD) returns.

6. Geographic Expansion Beyond Metro Cities: The number of BNPLs in Tier 2 and Tier 3 cities continues to grow rapidly due to the lack of formal credit infrastructure.

• Tier 2/3 Cities: These regions are seeing faster BNPL adoption, driven by limited access to traditional credit and a growing comfort with digital payments.
• Metro Cities: While metros account for 60% of BNPL spending, Tier 2/3 cities are emerging as high-growth areas.

These growth drivers paint a compelling picture of market opportunity, but they only tell half the story. The real catalyst behind BNPL's rapid adoption lies in the tangible value it delivers to the people who matter most—consumers and merchants.

Benefits of BNPL for Consumers and Merchants

BNPL offers a range of benefits, making it a popular payment method. For consumers, it provides flexibility, allowing them to make purchases and spread the payments over time. Merchants benefit from increased sales, higher conversion rates, and improved customer satisfaction. 

Here’s how BNPL delivers value to both parties:

For Consumers:

• Flexible Payments: Split purchases into manageable installments without paying interest in most cases.
• Higher Purchasing Power: Enables buying higher-value items without upfront full payment.
• Convenience: Quick approvals via digital wallets or UPI integration, no lengthy paperwork.
• Budget Management: Helps plan expenses without straining monthly budgets.

For Merchants:

• Increased Sales: BNPL options can boost conversion rates and average order value.
• Reduced Cart Abandonment: Shoppers are more likely to complete purchases with flexible payments.
• Customer Acquisition: Attracts younger, digital-first consumers who prefer installment options.
• Lower COD Risks: Reduces cash handling and returns associated with Cash on Delivery.

While the benefits are compelling, the rapid growth of any financial service brings inherent complexities. A balanced perspective requires examining both the opportunities and the potential pitfalls that come with this financial innovation.

What are the Risks and Challenges of BNPL?

From potential debt accumulation to regulatory concerns, understanding these challenges is crucial before opting for BNPL services. Below are the risks and drawbacks associated with BNPL:

• Debt Accumulation and Over-Borrowing: BNPL can lead to consumers accumulating more debt than they can manage, as small installment payments might encourage overspending. This can cause financial strain when users fail to keep track of their total borrowings.
• Late Payment Fees and Interest Charges: Failure to repay on time can result in late fees or added interest, making the total cost of a purchase much higher than expected. 
• Impact on Credit Scores: Delayed or missed payments can negatively affect a consumer's credit score, especially if the BNPL provider reports to credit bureaus. This can hinder access to future credit and impact financial health.
• Lack of Clear Understanding of Terms: Consumers may not fully understand the terms and conditions of BNPL services, such as repayment schedules, fees, or interest rates. Lack of clarity can lead to unexpected financial consequences.
• Regulatory Uncertainty: As BNPL services continue to grow, regulatory bodies are introducing stricter guidelines. Changes in regulations could impact how BNPL providers operate and may limit consumer access to services or increase fees.
• Privacy and Data Security Concerns: BNPL services collect vast amounts of personal data. If this data is compromised in a breach, consumers are at risk of identity theft or fraud, raising privacy concerns.
• Limited Merchant Participation: Not all merchants accept BNPL, particularly in smaller businesses or less tech-savvy sectors. This limits the reach and accessibility of BNPL services for some consumers.
• Impact on Traditional Credit Models: The growth of BNPL services challenges traditional credit products like credit cards and personal loans, which may see reduced usage as more consumers turn to alternative payment methods. This shifts market dynamics for financial institutions.

Given these considerations, many consumers find themselves weighing BNPL against more traditional alternatives. Credit cards, despite being around for decades, serve a similar purpose but operate quite differently.

BNPL vs. Credit Cards: A Comparison of Key Features

When choosing between Buy Now Pay Later (BNPL) services and traditional credit cards, it's important to understand the differences in how they operate, their costs, and their suitability for various financial needs.

Below is a comparison to help you evaluate which option might be more suitable for your financial habits.

This comparison highlights fundamental differences in how these financial products operate, but there's another crucial factor that shapes the entire BNPL ecosystem. The regulatory environment in India is still adapting to accommodate these innovative financial services.

Regulatory Landscape in India: BNPL

In India, Buy Now Pay Later (BNPL) companies are considered intermediaries between lenders (such as banks and non-banking financial companies) and consumers. While BNPL services have grown rapidly, they currently fall under the general purview of the Reserve Bank of India (RBI), which regulates lending and borrowing activities in the country. 

However, the specific regulatory framework for BNPL companies is still evolving, and there are no distinct regulations exclusively governing BNPL as of now.

• RBI’s Guidelines: BNPL providers are required to perform mandatory credit checks on consumers before offering credit. This ensures that consumers with poor credit histories are not given loans.
• Consumer Transparency: BNPL services must provide clear and transparent information about the terms and conditions of the credit, ensuring that consumers fully understand their repayment obligations.
• Credit Limits: The RBI has set limitations on the amount of credit that can be extended to consumers, aiming to prevent excessive borrowing and ensure responsible lending practices.

For consumers seeking reliable access to credit, choosing the right platform can make all the difference in their financial journey. This is where platforms like Pocketly demonstrate how BNPL principles can be applied to broader lending solutions.

Why Choose Pocketly for Your BNPL and Loan Needs?

Pocketly offers a flexible and transparent digital lending platform to meet the financial needs of young Indians. With a focus on quick, hassle-free Personal Loans and an intuitive user experience, Pocketly stands out as a reliable solution for managing short-term financial needs. 

Here are the key features of Pocketly that make it the preferred choice for consumers:

• Loan Amounts: Pocketly offers personal loans ranging from ₹1,000 to ₹25,000, making it accessible for various financial needs.
• Interest Rates: Competitive interest rates starting from just 2% per month, ensuring affordable repayment options.
• Processing Fees: Processing fees are between 1%-8% of the loan amount, depending on the loan size and repayment terms, with no hidden charges.
• Quick Approval: Get instant loan approval with minimal paperwork and a simple KYC process.
• No Collateral: Pocketly offers unsecured loans, meaning no collateral is required, making it easy for students, salaried professionals, and self-employed individuals to access funds.
• Flexible Repayment Options: Choose from various repayment plans that fit your financial situation, with the ability to pay early or partially without penalties.
• 24/7 Customer Support: Round-the-clock assistance to address any concerns or questions, ensuring a seamless experience.

Conclusion

Buy Now Pay Later (BNPL) is transforming how consumers manage their purchases, offering flexibility and convenience. With the rise of digital payments and growing demand for easier access to credit, BNPL services have gained significant traction in India. While it offers many advantages like interest-free payments and flexible repayment options, it’s essential to be mindful of potential risks such as debt accumulation and missed payments.

For those seeking a seamless way to handle short-term financial needs, Pocketly offers quick, hassle-free loans with low interest rates, no collateral required, and flexible repayment plans. Download the Pocketly app now for iOS or Android to get started!

FAQs

1. Who is eligible for BNPL?

Eligibility for BNPL typically depends on factors such as age, income, and creditworthiness. Most BNPL providers require users to be above 18 years old, with a valid ID and a stable source of income. Some platforms may also conduct a soft credit check to assess eligibility.

2. How to use PayLater in UPI?

To use PayLater with UPI, link your UPI ID to the PayLater option in your payment app. Select PayLater as your payment method at checkout, and confirm the transaction using your UPI credentials. Repay the amount within the set period to avoid interest or late fees.

3. Does Paytm have a Buy Now Pay Later option?

Yes, Paytm offers a BNPL option through Paytm Postpaid, allowing users to make purchases and pay later in installments. It’s available for both online and offline purchases and offers interest-free options with flexible repayment plans.

4. Who uses Buy Now, Pay Later?

BNPL is commonly used by young professionals, students, and digital-savvy consumers who prefer flexible payment options. It’s particularly popular among those who may not have access to traditional credit or prefer to manage payments in smaller installments.

5. Which Buy Now, Pay Later is most popular?

In India, Paytm Postpaid, Amazon Pay Later, and Bajaj Finserv are among the most popular BNPL services. These platforms have a large user base due to their widespread merchant acceptance and flexible payment terms.