Introduction

BNPL has revolutionised the shopping landscape in India and destroyed the impenetrable wall between consumers and getting what they want without paying for it. For its convenience, BNPL has become a preferred payment plan for young adults (millennials and Gen Z), letting them buy consumer goods in affordable, often interest-free, instalments. You can use BNPL to purchase anything from fashion, electronics and domestic appliances to beauty supplies and groceries. Consumers use BNPL on both e-commerce platforms and in brick-and-mortar retail. Is BNPL an essential financial safety net, or an almost certain debt trap, in the eyes of Indian consumers?

This article will examine how BNPL works and its pros, cons, and implications in the Indian context.

What is BNPL and How Does It Work?

BNPL is a short-term financing option that lets consumers buy products and pay in instalments, typically over weeks or months. At checkout, shoppers select a BNPL provider, make an initial payment (often 25% of the total), and settle the balance in fixed costs. Unlike conventional loans, BNPL usually bypasses strict credit checks, allowing students, new professionals, and others with fewer credit histories to receive credit. BNPL companies in India, such as ZestMoney, LazyPay, and Simpl, and global enterprises such as Klarna, have partnered with eTailers like Amazon, Flipkart, and Myntra. For example, a smartphone purchase for ₹4,000 could be paid for in four payments of ₹1,000 each, every two weeks, with no interest if paid on time. While certainly less common, some service providers allow more extended plans including interest for items with a higher cost, such as an appliance or a travel booking.

The Rise of BNPL in India

The expansion of BNPL in India coincides with India's digital transformation or revolution. With 700 million (and counting) internet users and one of the fastest-growing e-commerce markets, India's market is a good fit for digital lending platforms. BNPL has great appeal because it is simple and accessible, and especially useful for many young Indians who are often wary of credit card debt. According to a report published in 2024, the value of the Indian BNPL market is expected to rise to $15 billion by 2026, driven by increased smartphone adoption and online shopping. The merchants are also gaining. BNPL is lowering the number of abandoned shopping carts, elevating sales, and encouraging shoppers to spend money if they can defer the payment. The downside is that the merchant remains on the hook for transaction fees on BNPL solutions (typically 2-6% per transaction), which can affect their margins. Nonetheless, the number of merchants partnering with fintech lending solutions continues to increase, with many independent merchants adopting BNPL to compete.

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The Advantages of BNPL

For consumers in India, BNPL has benefits, as follows:

Affordability: Allows consumers to buy something they wouldn’t have been able to afford, without dipping into their savings and using their credit card, even if at high interest. This can appeal to consumers during festive shopping or when something unexpected needs to be addressed.

Accessibility: This also offers an opportunity for students, gig workers, and rural consumers with limited access to credit, as eligibility screening is minimal to none in some cases.

Flexibility: BNPL doesn't charge interest for the plan chosen (some may argue that they do, by raising prices), providing payment alternatives to loans that are otherwise cost-prohibitive, especially for smaller ticket items such as clothing or gadgets.

BNPL can improve retailer conversion rates and customer loyalty, as shoppers are more likely to complete a purchase when they can pay flexibly.

The Risks: A Debt Trap?

Nevertheless, BNPL is not without its risks. For many, these flexibility features can quickly lead to overspending, particularly for younger consumers. The need to track many BNPL schemes may lead borrowers to forget their repayment obligations. Missing a repayment can incur late fees (₹100-₹500 per missed default) or even higher interest rates, as much as 24% p.a., depending on the case.

For most BNPL providers in India, credit-related information is not transmitted to credit bureaus like CIBIL, so repayment does not build a borrower's credit score. At the same time, defaults related to larger loans can impact trustworthiness. In India, due to limited regulatory control, transparency has remained a concern in BNPL services even before the pandemic, as some providers promote their services by hiding the real fees buried in fine print, with terms and conditions that confuse users regarding ongoing fees.

For vulnerable market segments, like low-income earners or people new to credit, BNPL can quickly devolve into a debt trap. A survey in the Financial Times research reported in March 2023 revealed that 30% of those who used BNPL services in India found it difficult to repay the instalments, with excessive spending ranked as the leading cause. Without discipline and cautious consideration, BNPL could force budgets to squeeze, especially in times of economic uncertainty.

BNPL vs Other Financing Options

Although BNPL offers lower or no interest than credit cards, it lacks rewards and the ability to build credit. BNPL is faster and less bureaucratic than traditional loans, but limits borrowers to shorter-duration financing. Layaway, very popular in India, requires full monetary payment before taking possession, making BNPL much more enticing for individuals who prefer immediate access to new purchases.

Tips for Indian Consumers

Budget Carefully: Only opt for BNPL if payments fit your monthly income.

Read Terms: Check for hidden fees, interest rates, or penalties before signing up.

Track Plans: Use apps or reminders to monitor multiple BNPL commitments.

Limit Usage: Avoid using BNPL for non-essential purchases to prevent overspending.

Conclusion

BNPL is a double-edged sword in India: it provides consumers with flexible and accessible financing options, but it also relies on a discipline of debt management. For retailers, BNPL is a significant growth driver for their sales, but it is a powerful tool that requires user caution. Ultimately, as the BNPL industry matures in India, we will see whether it settles on an equilibrium of convenience and responsible financing or whether BNPL becomes an obstacle between consumers and their personal financial goals.