The rapid proliferation of Buy Now, Pay Later (BNPL) platforms has redefined short-term consumer credit in India’s digital marketplace. While these offerings promise convenience and financial flexibility, they simultaneously blur the boundaries between credit facilities, loans, and payment services. This article examines the evolving BNPL regulation India, assessing its intersection with existing banking, fintech, and consumer-protection frameworks. It also analyses the RBI’s position on BNPL models, explores compliance challenges under the fintech loan law India, identifies potential consumer risks, and anticipates future credit regulation 2025 developments.

Introduction: Understanding the BNPL Phenomenon

The Buy Now, Pay Later model allows consumers to purchase goods or services instantly and defer payment over a defined period, typically without interest if repaid within the stipulated term. Globally, BNPL platforms—such as Klarna, Afterpay, and Affirm—have reshaped e-commerce. In India, companies like Simpl, ZestMoney, LazyPay, and Amazon Pay Later have replicated this model to capture digitally active consumers.

The growth of BNPL in India has been phenomenal. Between 2020 and 2024, the sector expanded by over 200%, riding on digital payments infrastructure, UPI adoption, and pandemic-induced shifts in consumer behaviour. Yet, this growth has outpaced the development of coherent BNPL regulation India, creating ambiguity regarding the legal character of BNPL transactions—are they loans, credit facilities, or payment instruments?

The Legal Character of BNPL: Loan, Credit Facility, or Payment Service?

A core question confronting regulators and jurists is whether BNPL constitutes an extension of credit (akin to a personal loan) or merely a deferred-payment arrangement facilitated by a fintech intermediary.

1. Loan-like features
   • BNPL involves a creditor (fintech or partner NBFC) disbursing funds to a merchant on behalf of the consumer.
   • The consumer repays the lender in instalments.
   • Interest or late-fee structures mirror traditional lending.
2. Credit-facility interpretation
   • Some BNPL providers function as intermediaries enabling merchants to offer short-term credit without direct lending licences.
   • The transaction may avoid classification as a “loan” under the fintech loan law India, although it achieves the same economic outcome.
3. Payment-service analogy
   • Others position BNPL as an “embedded payment option,” integrating instant checkout within e-commerce platforms.
   • However, since such transactions create deferred payment obligations, they arguably fall within the purview of credit regulation 2025 frameworks.

The absence of uniform definitions has enabled fintechs to innovate while exposing regulatory grey zones. Courts and policymakers must decide whether substance should prevail over form—i.e., whether the functional equivalence of BNPL to credit suffices to trigger loan-regulation provisions.

The Regulatory Landscape: RBI’s Position and Guidelines

The Reserve Bank of India (RBI) has taken a cautious stance toward BNPL products, mindful of systemic risks in unsecured digital lending. Its buy now pay later RBI pronouncements since 2022 reflect an evolving regulatory understanding.

RBI’s Digital Lending Guidelines

In September 2022, the RBI issued Guidelines on Digital Lending applicable to all Regulated Entities (REs)—banks and NBFCs—engaged in digital lending, directly or through Lending Service Providers (LSPs). Key provisions include:

• Disbursement and repayment must occur only through the RE’s bank account, eliminating pass-through arrangements.
• Data protection and consent requirements ensure borrowers’ information is used transparently.
• Disclosure obligations mandate lenders to provide a Key Fact Statement (KFS) detailing all fees.
• Recovery practices must comply with fair-treatment standards.

These directives implicitly cover BNPL models where the underlying lender is a bank or NBFC. However, fintechs operating outside formal credit frameworks remain ambiguously placed—highlighting a pressing need for comprehensive BNPL regulation India.

RBI’s Action on Prepaid Payment Instruments (PPIs)

In June 2022, the buy now pay later RBI circular barred loading of PPIs using credit lines, effectively curbing many BNPL models that issued prepaid cards funded through short-term credit. The move underscored the regulator’s intention to separate legitimate credit activity from payment-instrument misuse. Fintechs were compelled to restructure partnerships, ensuring that only regulated lenders could extend credit.

Compliance Imperatives under Fintech Loan Law India

Fintechs providing BNPL services must now comply with:

• The Reserve Bank of India Act, 1934 and Banking Regulation Act, 1949 (licensing and prudential norms).
• The Information Technology Act, 2000 (data governance).
• The Consumer Protection Act, 2019 (fair-trade and disclosure obligations).
• The Digital Personal Data Protection Act, 2023 (privacy and consent).

These intersecting statutes collectively form the fintech loan law India matrix governing BNPL operations.

Fintech Compliance Challenges

Despite the RBI’s clarifications, multiple compliance challenges persist:

Licensing and Partnership Models

BNPL firms must partner with licensed NBFCs or banks to originate credit. However, questions arise regarding liability for defaults, especially when fintechs handle onboarding, risk assessment, and collections.
Under the forthcoming credit regulation 2025 expectations, fintechs performing core credit functions may need to obtain limited lending licences themselves.

Data Handling and Consent

Given the data-driven nature of BNPL underwriting, firms must align their algorithms with the principles of consent under the Digital Personal Data Protection Act 2023. Non-compliance invites penalties and reputational risk.

Algorithmic Bias and Transparency

The opacity of automated credit-scoring tools could violate fairness obligations. The RBI may introduce explainability requirements under the evolving BNPL regulation India framework to ensure non-discriminatory outcomes.

Consumer Disclosures

BNPL advertisements often highlight “zero interest” offers without clear disclosure of penalties or late fees. The Consumer Protection (Advertisement and Endorsement) Rules 2022 require truthful communication, a mandate that the buy now pay later RBI may enforce through financial literacy campaigns.

Risks for Consumers

While BNPL schemes democratise access to credit, they also introduce financial and legal risks that require regulatory mitigation.

Hidden Charges and Opaque Contracts

Many BNPL contracts contain embedded fees—processing charges, convenience costs, or penalties on missed payments—that consumers may overlook. Such opacity could constitute an unfair trade practice under the Consumer Protection Act 2019. The RBI’s insistence on Key Fact Statements aims to enhance transparency.

Impact on Credit Scores

Although BNPL loans are often marketed as “interest-free,” defaults are reported to credit bureaus, affecting consumers’ creditworthiness. This dynamic brings BNPL squarely within the credit regulation 2025 ecosystem. Lenders must therefore establish clear consent protocols before data sharing.

Data Privacy Risks

BNPL applications collect sensitive data—income, behavioural analytics, device information—raising concerns of misuse or unauthorised profiling. Compliance with fintech loan law India privacy obligations is thus indispensable.

Over-Indebtedness and Behavioural Risk

The convenience of deferred payments may encourage impulsive spending, particularly among younger consumers. Without adequate credit assessment, the model can lead to a debt spiral reminiscent of payday-loan crises. Responsible-lending norms under BNPL regulation India should therefore mandate affordability checks.

Comparative Perspective: Global BNPL Regulations

Examining international practice illuminates potential pathways for Indian regulators.

• United Kingdom: The Financial Conduct Authority (FCA) plans to bring BNPL under the Consumer Credit Act 1974, requiring affordability assessments and clear disclosures.
• Australia: The National Consumer Credit Protection Act (NCCP) will soon classify BNPL as a credit product subject to responsible-lending obligations.
• United States: The Consumer Financial Protection Bureau (CFPB) is evaluating BNPL providers under existing credit-reporting frameworks.

India’s credit regulation 2025 efforts appear aligned with these international trends, seeking to balance innovation with consumer protection.

Judicial and Policy Interpretation

Although Indian jurisprudence on BNPL remains nascent, certain precedents on digital lending and electronic contracts offer guidance.

• Validity of E-Contracts: Under the Information Technology Act 2000, electronic offers and acceptances are legally binding, enabling the enforceability of BNPL agreements.
• Liability Allocation: Courts have consistently held intermediaries accountable when they exert substantive control over financial transactions. Hence, fintechs operating quasi-banking functions may attract the same obligations as lenders under the buy now pay later RBI framework.

Policy discussions within the RBI’s Digital Lending Working Group suggest movement toward defining BNPL as a subset of “short-term consumer credit,” thereby harmonising it with the fintech loan law India regime.

The Future of BNPL Regulation in India

Formal Recognition as a Credit Product

Upcoming credit regulation 2025 reforms are expected to codify BNPL within the definition of “credit facility,” extending all prudential, disclosure, and reporting requirements applicable to short-term loans.

Unified Licensing and Supervision

A specialised registration framework for fintech credit intermediaries may emerge, requiring them to obtain limited-purpose licences. This would formalise accountability for underwriting, risk management, and consumer redress.

Enhanced Data Protection

Integration with the Digital Personal Data Protection Act will compel BNPL providers to implement robust encryption, storage limitation, and user-consent management—ensuring that fintech loan law India evolves holistically.

Cross-Sector Coordination

Given BNPL’s overlap with payment systems, credit markets, and e-commerce, inter-regulatory coordination between the RBI, SEBI, MeitY, and the Department of Consumer Affairs will be central to comprehensive BNPL regulation India.

Policy Recommendations

1. Define BNPL in Law
   Clear statutory recognition of BNPL as a regulated credit product will eliminate interpretive uncertainty.
2. Introduce Affordability and Suitability Assessments
   Providers should assess borrowers’ repayment capacity, mirroring practices under International Credit Regulation 2025 models.
3. Strengthen Consumer Disclosures
   Mandatory Key Fact Statements should summarise total repayment amounts, late-fee structures, and credit-reporting implications in plain language.
4. Regulate Algorithmic Underwriting
   The RBI could issue guidance on ethical AI use in credit scoring, ensuring compliance with the fintech loan law India and preventing discrimination.
5. Establish a Central Complaint Portal
   Consumers facing harassment or data misuse could access a unified grievance redressal mechanism under the buy now pay later RBI umbrella.

Conclusion

BNPL represents both innovation and disruption in India’s credit ecosystem. Its hybrid nature challenges conventional distinctions between lending and payments, demanding nuanced regulation. The RBI’s progressive engagement, coupled with forthcoming credit regulation 2025 reforms, signals a shift toward harmonised oversight.

For fintechs, compliance with fintech loan law India requirements—licensing, data protection, fair-practice norms—is no longer optional but existential. For consumers, informed participation is vital to mitigate hidden costs and data privacy risks.

Ultimately, the trajectory of BNPL regulation India will determine whether this model matures into a legitimate credit instrument fostering financial inclusion—or remains, in essence, a loan in disguise awaiting judicial and legislative reckoning.

References

• Reserve Bank of India (RBI). Guidelines on Digital Lending. Circular No. DOR.CRE.REC.66/21.07.001/2022-23, dated 02 September 2022.
• Reserve Bank of India (RBI). Reserve Bank of India (Digital Lending) Directions, 2025. Press Release dated 8 May 2025.
• International Bar Association (IBA). “Regulating Buy Now Pay Later Fintechs.” IBA Article, 2023.
• N M Law Firm. “BNPL (Buy Now, Pay Later) Models: Are They Legally Sustainable?” Legal Commentary, 2023.
• TCLF (The Contemporary Law Forum). “BNPL in India: A Convenient Solution with a Dark Side.” Law & Policy Blog, 2023.