What Is Buy Now, Pay Later? Things To Know Before Using BNPL

Buy Now, Pay Later (BNPL) is an emerging option of repayment in India. The tech-led lending sector has seen a boom due to increasing online shoppers and demand for seamless payment options.

Several reports have suggested that BNPL has seen popularity among GenZ and millennial customers. Since the start of the pandemic, this option witnessed a huge jump in its reach especially among young and low-income consumers who may not have ready access to traditional credit.

BNPL market in India to reach $15 billion in 2026, estimated data and analytics firm GlobalData in 2022.

BNPL services are gradually gaining traction in the Indian payments market and the transaction value of these services is estimated grow at a compound annual growth rate (CAGR) of 32.5% between 2022 to 2026 to reach $15 billion in 2026, driven by increased demand for short term credit coupled with growing consumer preference for online shopping.

What is Buy Now, Pay Later (BNPL)?

BNPL is a financing option that allows shoppers to buy something with a choice to pay for it later within a stipulated interest free period, which differs according to the platform. Most payments apps which offer BNPL services ask customers to furnish government recognised ID and bank details before they can avail the service.

Things to know before availing BNPL

Users must note if they fail to pay the amount within the defined window for repayment, the BNPL lender will charge interest, including late payment fees. This has the potential to impact the credit score.

How does BNPL work?

The BNPL platform settles the bill outright with the merchant on the buyer’s behalf. Many consumers confuse the usage of BNPL as similar to that of a credit card, However, among other differences, credit cards are used anywhere that accepts it as a payment mode. On the other hand, the BNPL facility can be availed only via a merchant.

The interest free period varies for different platforms from 15 to 45 days. The credit limit also ranges from Rs 500 to Rs 1 lakh.

Where to use BNPL?

As the Covid-19 pandemic sent more and more people towards online shopping, the demand for easy loans also went up with many players available in the market. Typically, e-commerce companies and fintech players offer BNPL options.

However, even some banks have started offering this option for the customers.

Regulation of BNPL

The Reserve Bank of India last year prohibited the loading of prepaid payment instruments with credit lines.

It means non banks are not allowed to load prepaid instruments like digital wallets, or stored-value cards, using credit lines. The guidelines came after many BNPL platforms began to circumvent the rules by partnering with banks to issue cards with diluted KYC process with no check on credit histories, CNBC TV18 had reported.

Moreover, India is not the only country alarmed by the proliferation of BNPL.

The sector also faced scrutiny from regulators in the UK, as consumers struggle with rising costs. As the cost of living increases, some shoppers have started breaking up payments on essentials, rather than just big-ticket items like electronics or designer clothes.

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