Breaking Boundaries: India’s Buy Now Pay Later Phenomenon Sparks Credit Revolution- But Is it Sustainable?


The Buy Now Pay Later (BNPL) market in India has experienced an unprecedented surge, becoming a catalyst for the credit revolution in the country. With a staggering compound annual growth rate of ~321% between 2019 and 2021, the BNPL industry has witnessed remarkable growth. The sector is currently driven by factors such as increasing smartphone and internet penetration, coupled with unmet credit demands that were unfulfilled by the credit card players. However, amidst the skyrocketing growth, the sector faces certain challenges like the lack of government regulations and the rising number of BNPL fraudulent providers. Now this raises a question on the sustainability of the BNPL market. Here is Ken research observation on the landscape of the BNPL industry in India.

1. Buy Now Pay later Services (BNPL) are recognized as Proxy lending services by RBI: BNPL companies are proxies between lending partners and customers

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2. In India, increasing smartphone and internet penetration, and credit demand unfulfilled by credit cards helped the BNPL players proliferate

The Supply side of BNPL Market is driven due to growing penetration of digital lending in Tier 2 and 3 cities…

  • Increasing Smartphone penetration
  • Increasing Internet Penetration and Digital Lending Demand In Tier 2 and 3 cities
  • Vertical Search Engines (more customers via search engines)
  • AI and Big Data Analytics (for targeting customers)
  • Application Programming Interface
    Internet Penetration
    Internet Subscribers (CY’20)1 Broadband Connections (CY’20)1 Mobile Connections (CY’20)1
    795.18 Millions 747.3 Millions 1153.7 Millions
    Government Initiatives
  • India Stack (Open Source APIs)
  • Startup Ecosystem (Encouraging startups via funding)
  • Digital India (to encourage adoption of digital payments)
  • Adhaar Enrolment
    Regulatory Enablers
  • Framework for Account Aggregators and P2P lending platforms (Adhaar enabled KYC, e-sign, Digilocker increasing security of digital transactions)
  • App based NBFCs
  • Reserve Bank Innovation Hub
  • Financial Inclusion Initiatives

Demand Side Growth Drivers

  • Younger Population (More easier adoption of new technology)
  • Aspirational Consumers (driven by lifestyle needs)
  • Increasing digital native population
    Macro- Economy
  • Pandemic Induced Financial Stress (~12% unemployment rate at the end of FY’21)2
  • ~4% drop in per capita GDP (at current prices) from FY’20 to FY’21 due to the second wave of COVID 193
    Rise of Online Purchase
  • A surge in online purchases during lockdowns
  • Coupling with a tendency to save capital, BNPL becomes an ideal method of payment, similar to wallets
  • Target customer base of BNPL is tech savvy: leading to faster adoption
    Unmet Demand
  • Low credit penetration to informal economy/sub prime borrowers/ loans of smaller ticket size (BNPL is more easier to acquire)
  • High sensitivity of banks for assessing credit risk, while BNPL services are more lax
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2.1 Additionally, E-commerce and convenience offered by BNPL services are primary reasons for users to adopt Pay Later practices

Adoption rationale behind the fast adoption of BNPL services

  • In the massive Indian population and middle-class context, the existing 60 million credit cards are not enough to address consumer credit demand.
  • Lowered income and unemployment during COVID 19, and lower lump-sum capital investment, making alternative lending a viable option
  • The thriving e-commerce market in India, which has been aggressively targeted for partnership with BNPL players
  • Low credit card penetration coupled with BNPL’s frictionless credit experience has boosted a fast adoption of BNPL services
  • Web of partnerships that spans all retail sectors and includes the most popular brands.
  • Use of sophisticated risk management algorithms that allow companies to lend to previously unbanked clientele. 
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3. Currently, no laws specific to BNPL lending are in place: RBI is considering measures and policies to regulate the BNPL market

The following legislations cover loan transactions including BNPL, however, BNPL market specifically does not have regulatory measures in place1…

State Legislation
Himachal Pradesh HP Money Lenders Act 1976
Punjab The Punjab Registration of Money-Lenders Act, 1938
Haryana Adopted Punjab Legislation vide Haryana Adaptation of Laws Order, 1968
Rajasthan Rajasthan Money Lenders Act, 1963
Uttar Pradesh Uttar Pradesh Regulation of Money Lending Act, 1976
Uttarakhand Same as Uttar Pradesh
Gujarat Gujarat Money Lenders Act 2011
Kerala Kerala Money Lenders Act, 1958
Tamil Nadu Tamil Nadu Money Lenders Act, 1957
Maharashtra Maharashtra Money lender's Act
Andhra Pradesh Andhra Pradesh (Telangana Area) Money Lenders Act, 1349
State Legislation
Telangana Andhra Pradesh (Telangana Area) Money Lenders Act, 1349
West Bengal Bengal Money-Lenders Act, 1940
Odisha Orissa Money Lenders Act, 1939
Bihar Bihar Money Lenders Act, 1974
Karnataka Karnataka Money Lenders Act, 1961
Madhya Pradesh Madhya Pradesh Money Lenders Act
Chhattisgarh Same as M.P.
Assam The Assam Money Lenders Act, 1934
Tripura Tripura Moneylenders Act, 2009
Nagaland Nagaland Money Lenders Act, 2005
Mizoram The Mizoram Money Lenders' Act, 2010
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3.1 Also, the large number of fraudulent BNPL providers is a concern for the consumer that inhibits the growth of the industry: New regulations could change the scenario for BNPL companies

Challenges and Issues for a customer in the BNPL Market in India

  • Smart phone requirement
  • Internet Requirement
  • No SMS based lending (with only cellular service available) hence limited with penetration
  • Increasing fraudulent apps springing up in the market
  • App based Lending a front for many mafia like lending establishments
  • Number of App Stores in which Indian loan apps are available1 No. of illegal loan apps1 Number of Complaints against digital lending apps (Jan 20 to March 21)1
    ~81 ~600 ~2560
    Social and Demographic
  • The higher age group (>36 years) still resistant to adoption
  • BNPL services viewed as “loan”, which traditionally has meant a high capital transaction in India
  • Word to mouth limited as people often hide their credit lines, entirely reliant on merchant partnerships for promotional affairs

Challenges and Risks for a BNPL Service Provider

  • RBI has proposed new guidelines to be established for BNPL companies.
  • IT Act proposed to be amended, including BNPL services into the definition of “loans”
  • Highly dependent on merchant partner performance
  • Too many payment options in the food aggregator market
  • Niche sector partnerships such as healthcare require more ground to cover (fragmented market)
    Revenue Streams
  • Low sensitivity to eligibility for credit leads to higher delinquency
  • Business cannot handle delinquency of more than ~1%
  • MDR highly dependent on customer ticket size and customer base
  • Niche sector (Startup merchant partners) have lower ticket size
    Customer Care
  • Requirement of quick resolution of customer conflicts and issues (capital sensitive customer base)
  • Tech failures such as app crashes can result in huge customer loss
  • Lack of regulation means lower accountability from the customer as well
Source: RBI Report
Interviews with Indian Buy Now Pay Later Market & Fintech Experts, Industry Articles, Company Websites & Ken Research Analysis

4. Still, the industry has a high potential to thrive exponentially owing to the Convenience of credit offered by BNPL players



  • More convenient
  • Thriving merchant partner market
  • Ease of market entry
  • The convenience offered with ease of getting a credit line has been a USP to the BNPL market
  • All the merchant partner markets such as food aggregators, travel aggregators, e-commerce, etc. have optimistic growth for future
  • Entry of new players has seen a rise in recent years; easier market entry due to less regulatory, set-up cost and competition barriers.


  • Lack of governing regulations
  • Low tolerance for delinquency
  • Recent phenomena
  • No regulations specific to BNPL segment has flooded the market with fraudulent apps
  • Higher rates of delinquency can quickly drive business to ground; required to be above ~1%
  • As the market has seen recent surge; adoption is still in early stages


  • UPI Integration
  • Rising target segment population
  • Growth of new niche segments (B2B, healthcare)
  • NPCI and RBI in discussions to integrate UPI payments to BNPL services, will be very beneficial for adoption of BNPL
  • The target segment of 26-35 years is a growing population, along with those younger, a future market for BNPL
  • Opportunities in healthcare and B2B segments, where competition is minimal
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