‘Buy Now, Pay Later’ in India


India’s digital lending market is expected to reach $100 billion by 2023, posting a CAGR of 36%. The digital lending space in India has 330 startups. Digital payments saw a steep rise because of social and economic factors brought about by the COVID-19 pandemic—this is reflected in UPI hitting 1.34 billion transactions in June 2020. 


Consumption has been the bulwark of growth in recent years. Over the past few years, households in India have dipped their savings and leveraged themselves to finance consumption. The year 2020 brought this changing habit to the mainstream, with the pandemic impacting financial stability and continuity.

The growing importance and penetration of non-banking financial companies (NBFCs) are helping fund retail credit demand. However, post the NBFC credit crunch, credit has become a tad inaccessible to riskier customer profiles, somewhat constraining households’ ability to spend.


This reduction in spending capacity pushes lending companies to innovate and introduce new products to retail consumers. ‘Buy Now, Pay Later’ (BNPL) is an ingenious product that aims to take formal microlending in an informal way to retail customers, especially to the segment that does not get easy credit from banks.

‘Buy Now, Pay Later’ 

BNPL is a zero-interest, short-term micro-credit for online purchases such as food, clothing, and travel. It is a digital credit payment offered by online providers, which allows a consumer to make a purchase and either delay the payment by 14–30 days or slice the payment into smaller chunks that can be repaid over several installments (may not be structured loans). 

MEDICI defines BNPL as a credit amount given to a user for a certain number of days, without processing fees or interest rates. This credit enables the user to pay upfront for their purchases, without any deduction from their bank account. It offers them the convenience to pay with all their purchases together. A BNPL solution provider either charges an interest rate or fixed rate if the user cannot pay the credit amount within a specified number of days or provides easy equated monthly installment (EMI) options.


A BNPL provider extends credits to a consumer with only e-KYC and some credit health checks in the background. The instant credit decision is supported by alternative credit scoring based on the consumer’s digital data, such as alternative data, mobile data, purchase data, and location data. RBI guidelines allow approved entities to disburse loans of up to INR 60,000 in a year to individuals registered through the Aadhaar OTP-based KYC process. Various FinTechs have leveraged these guidelines to extend innovative BNPL offerings to customers outside the structured credit basket. This segment of urban and s …