Buy Now Pay Later India

A new wave of consumerism is on the rise, making credit cards passé. The BNPL movement has disrupted the credit world, and India has also joined this global bandwagon, revolutionizing the way people shop. BNPL is a form of credit that lets consumers divide a retail transaction into smaller, interest-free installments. A typical BNPL structure divides a purchase into four equal installments, with the first installment paid as a down payment during checkout, and the next three due in two-week or monthly intervals over six weeks to three months.

Globally, major BNPL players include Klarna, Afterpay, PayPal Pay Later, Zip, Affirm, Sezzle, Splitit, Perpay, Clearpay, Zilch, and Laybuy. In India, the most commonly used BNPL platforms include LazyPay, Simpl, ZestMoney, Amazon Pay Later, Flipkart Pay Later, Snapmint, and OlaMoney Postpaid.

BNPL Vs Credit Cards. Consumers’ Choice?

In India, getting a credit card is a time-consuming process with a list of criteria to meet. For instance, having a high credit score is one of the biggest criteria to meet the need. Many applications for credit cards get rejected in India as they fail to meet the credit score requirements (CIBIL score). On the contrary, BNPL is much easier as a credit facility that helps customers enjoy a simple credit experience from diverse vendors.

BNPL credit limits are typically set depending on shopping behavior and income inflow. Simpl initially offers a lower spending limit and gradually increases it based on one’s usage and repayment history. This helps manage risks and build trust with new users, allowing consumers to access the credit facility without getting into a debt spiral.

Credit cards are more susceptible to scams, whereas BNPL platforms enable security, and they generally involve smaller amounts. Credit cards allow customers to make purchases while paying only a minimum amount, often accruing exorbitant interest rates on the balance amount. In contrast, BNPL blocks services immediately if an instalment is missed, minimizing the risks for retailers and customers.

With timely payments, BNPL platforms do not charge any interest, and they keep reminding customers about their forthcoming payments and even encourage them to make early payments to improve their credit scores. Most customers do not struggle to make BNPL payments as they do with the huge monthly credit card payments.

Is Online Shopping Driving the BNPL Explosion?

The BNPL model is highly appealing to Generation X, millennials, and Gen Z consumers who love shopping online but do not have the patience to juggle between various apps to complete their purchases. They prefer streamlined and seamless payment solutions at the point of sale, which integrate BNPL platforms with online retailer websites.

U.S. consumers spent a record US$ 18.5 bn using BNPL services in the final quarter of the year on Amazon's Prime Day, according to Adobe Analytics. The report also emphasized a surge in BNPL payments during the COVID-19 pandemic as more shoppers moved online, driving US$ 75 bn in online BNPL spending in 2023, a 14.3% increase from 2022.

Europe’s largest BNPL provider -Klarna, a Swedish fintech giant, valued at US$ 31 bn in 2020, with 250,000 merchant partners and 90 mn users across 40 markets. PayPal entered the BNPL space in late 2020 and quickly gained traction through major integrations such as eBay, solidifying its position as a key player.

In India, numerous premium brands are connected with Simpl and LazyPay for their payments, making them popular among tech-savvy consumers. Amazon has Amazon Pay Later, which offers high credit limits. Online shopping portals such as Myntra offer various BNPL services from partners such as CASHe and LazyPay, ZestMoney, and Snapmint for EMI purchases.

In 2019, U.S. consumers transacted for goods and services worth US$2 bn using pay-later loan facilities. By 2023, that figure ballooned to over US$ 116.3 bn as indicated by online sources. BNPL for online shopping continues to grow rapidly, driven by booming e-commerce and the appeal of smaller and deferred payments.

BNPL Usage Surges in the Grocery Sector

A Lending Tree survey found that 25% of BNPL users fund grocery purchases with these services. According to the survey, groceries ranked fourth among the items purchased using BNPL options, behind clothing, shoes, and accessories (41%), technology devices (39%), and home décor, furniture and appliances (33%). In 2024, Sezzle partnered with Vallarta Supermarkets to offer shoppers the ability to pay in four interest-free installments over six weeks. Sezzle cited Adobe data showing a 40% year-over-year increase in BNPL grocery purchases.

In India, Blinkit, for example, uses LazyPay for one-tap mobile payments. Zepto also has a partnership with Simpl for its Zepto Postpaid service. BigBasket is a long-standing partner with both LazyPay and Simpl.

The Flip Side of Buy Now Pay Later

Immediate ownership without upfront payment makes BNPL much more attractive. However, the ease of access can boost imprudent spending, leaving consumers debt-ridden with repayment troubles. Hidden fees, penalties for missed payments, and a lack of financial transparency often blindside the users. Without careful budgeting and awareness, BNPL transforms from a convenient tool into a pathway to financial strain and long-term credit issues for consumers.

A study by Qualtrics on behalf of Credit Karma found that 34% of those who have used BNPL have defaulted on one or more installments. With multiple BNPL providers offering loans at the point of sale, it is easy for consumers to use all BNPL options for diverse products, unaware of the cumulative effects. Without a centralized dashboard for consumer expenditures, they can inadvertently overextend their credit with multiple vendors.

Future of BNPL

Industry experts are assuming the enforcement of more stringent regulations and policies about data privacy, transparency, and consumer protection in the U.S. and EU for BNPL services. In 2024, the U.S. Consumer Financial Protection Bureau (CFPB) categorized BNPL lenders as credit card providers, thereby extending consumer rights such as dispute rights, refunds, and billing statements. This decision followed after noticing that many BNPL loans were approved for subprime borrowers, who had taken multiple loans from different BNPL providers.

Despite these regulatory challenges, BNPL continues to grow, especially among younger, credit-averse generations such as Gen Z, who prefer low-commitment payment options. The sector remains competitive and rapidly evolving, with partnerships (Klarna and DoorDash) expanding BNPL into new horizons. With appropriate regulatory oversight, BNPL is set to become as ubiquitous as Apple Pay or Google Pay, potentially reshaping the online shopping ecosystem.