Buy Now, Pay Later (BNPL) services swept across India like a storm over the last few years. Millions of young Indians started using them for everything — from groceries and gadgets to travel and fashion. The idea looks simple: buy what you want now, and pay later in easy installments without interest. It sounds like a win-win situation for consumers and merchants alike. But beneath this convenience lies a darker truth — hidden costs, mounting debt, weak regulation, and data risks that threaten both individuals and the financial system.
The Rise of BNPL in India
BNPL entered the Indian market around 2019, driven by fintech startups such as ZestMoney, Simpl, LazyPay, and Paytm Postpaid. These platforms grew fast because they filled a gap that traditional banks had ignored — young people without credit cards or strong credit history.
According to industry estimates, the BNPL market in India could touch nearly $22 billion in 2025 and might grow to over $50 billion by 2030 if unchecked. Over 100 million Indians have already tried a BNPL service at least once. The pandemic accelerated this growth, as people turned to online shopping and digital payments while incomes became uncertain.
The model looks straightforward: the BNPL company pays the merchant upfront and then collects the amount from the customer over a few weeks or months. Many services advertise “zero interest” and “instant approval.” But this marketing hides the actual costs and risks that come with it.
Hidden Costs and Traps
BNPL apps attract users with slogans like “No Interest” and “No Fees.” Yet the fine print tells a different story. Most companies make money through merchant commissions, late fees, and penalty interest when customers miss payments.
A consumer who delays a payment by even a few days often faces steep charges. Some providers automatically convert unpaid bills into longer-term loans with higher interest rates. These conversions happen silently, without clear consent, and customers only realize it when they see unexpected deductions or collection calls.
Many BNPL players also charge “processing fees” or “convenience charges” on each transaction. While these amounts look small, they add up quickly. Someone using BNPL regularly might pay thousands of rupees each year in hidden costs.
The Debt Spiral
BNPL platforms make credit look effortless. The apps approve transactions within seconds, sometimes without any income verification. A user can stack multiple BNPL loans across several apps without any coordination between them.
Young consumers — especially college students and first-jobbers — often fall into this trap. They take small loans for clothes, food delivery, gadgets, and entertainment. When due dates arrive, they scramble to repay multiple EMIs. Delays trigger penalties, and some borrow again from other BNPL apps to cover older dues. This cycle leads to a debt spiral.
Credit bureaus have started flagging BNPL defaults as negative entries. A single missed payment can damage a person’s credit score and make it harder to qualify for bank loans or credit cards later. So, what starts as a “free” convenience can turn into a long-term financial setback.
Psychological Triggers and Overspending
BNPL doesn’t just change how people pay; it changes how they think about money. The “Pay Later” option dulls the pain of spending. When shoppers don’t feel the financial impact immediately, they buy more than they can afford.
E-commerce sites and BNPL companies use behavioral nudges — such as one-click checkout and pre-approved limits — to encourage impulse purchases. Consumers who might hesitate to pay ₹10,000 upfront often agree to “₹2,500 per month for 4 months.” This micro-financing illusion leads to overconsumption, especially among younger users still learning to manage money.
Data Privacy and Surveillance
Every BNPL transaction generates data — where you shop, what you buy, how much you spend, and when you pay. Companies use this data to build behavioral profiles and to target customers with personalized credit offers.
Many fintechs share this data with partner merchants, data analytics firms, and even advertising networks. In some cases, users consent unknowingly by accepting terms buried inside long agreements. This data ecosystem raises serious privacy concerns.
Since India still lacks a comprehensive credit data protection law specifically for digital lending, the potential for misuse remains high. Data breaches or unauthorized sharing could expose sensitive financial behavior to third parties.
Rising Fraud and Identity Theft
The BNPL boom also attracted fraudsters. Scammers exploit weak verification systems and open fake accounts using stolen PAN or Aadhaar details. Some use synthetic identities — mixing real and fake information — to take loans and disappear.
BNPL’s focus on speed and instant approval often means companies cut corners on security checks. Once a fraudulent transaction occurs, consumers and merchants spend weeks resolving disputes. Fintechs absorb large losses, and some pass those costs back to legitimate users through higher fees or stricter eligibility criteria.
Regulatory Wake-Up Call
The Reserve Bank of India (RBI) initially watched the BNPL space with caution but allowed experimentation. However, as complaints grew, the central bank started tightening rules. In May 2025, the RBI introduced the Digital Lending Directions, 2025, a comprehensive framework to regulate all forms of digital credit — including BNPL.
The rules require clear disclosures, robust KYC verification, and full transparency in fee structures. Lenders must display all charges upfront and obtain explicit consent before increasing loan terms. The RBI also insists that only licensed banks or NBFCs can actually disburse credit; fintechs must act as intermediaries, not unregulated lenders.
Soon after these rules came into force, the RBI ordered a leading BNPL company to halt certain payment operations over compliance issues. The sudden freeze created panic among merchants and users, exposing how fragile the BNPL ecosystem had become.
Cracks in the Business Model
Most BNPL startups burn cash to acquire users. They rely heavily on merchant commissions and hope to cross-sell other financial products later. But as defaults rise and regulations tighten, profitability becomes harder to achieve.
Several BNPL companies have started pivoting to traditional consumer loans or co-branded credit cards. This shift shows that the pure BNPL model — built on fast credit without deep underwriting — cannot survive indefinitely.
Merchants, too, face trouble when BNPL partners collapse. Refunds, settlements, and chargebacks get delayed, hurting small businesses that depend on daily cash flow.
The Social Cost
BNPL promotes a culture of consumption that often runs ahead of income growth. It targets millennials and Gen Z users who crave instant gratification but lack financial literacy. This dynamic increases stress, encourages short-term spending, and weakens saving habits.
When a generation normalizes debt as part of everyday shopping, the long-term consequences can resemble the credit-card crises that hit Western economies years ago. If defaults surge, non-bank lenders and fintech investors will absorb heavy losses, but the reputational damage to digital finance will affect everyone.
How Consumers Can Protect Themselves
- Read every term before you click “Agree.” Understand all charges, late fees, and conversion rules.
- Track every BNPL plan. Use reminders or budgeting apps to avoid missing payments.
- Limit the number of BNPL accounts. One or two is manageable; five or six can overwhelm your cash flow.
- Use BNPL for essentials only. Don’t finance impulsive purchases or short-lived items.
- Pay early whenever possible. Early payment builds discipline and protects your credit score.
- Avoid sharing personal data with unverified apps or websites that promise instant credit.
What India Needs Next
To make BNPL sustainable, India must combine innovation with responsibility. Regulators should continue enforcing strict KYC, fair-lending practices, and data protection standards. Industry bodies must develop common guidelines for disclosures and credit reporting.
Education also matters. Schools, colleges, and digital platforms must teach basic financial literacy so that young Indians understand how short-term credit affects long-term stability.
Fintech companies, on their part, must stop relying solely on flashy marketing and start building transparent, ethical credit systems that earn trust instead of exploiting it.
Conclusion
BNPL reshaped the way Indians spend and pay. It democratized access to credit and empowered millions to buy products previously out of reach. But it also created a dangerous illusion — that credit comes without cost or consequence.
Hidden fees, data exploitation, mounting defaults, and regulatory interventions now expose the cracks in the BNPL dream. The time has come for both users and companies to recognize that “pay later” always means “owe later.”
True financial progress doesn’t come from instant approval or deferred payments. It comes from informed choices, responsible borrowing, and transparent systems that protect the very consumers they claim to serve.
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