Buy Now Pay Later: Regulatory Ambiguity And Consumer Protection

BNPL (Buy Now Pay Later) is a point-of-sale credit that allows consumers to pay for goods over a small period while receiving such goods as if the payment was made upfront. Initially ignored as another form of installment-based credit, the BNPL market picked up during the course of Covid-19 pandemic. The BNPL market expanded by a huge 569% Y-O-Y in 2020 while it grew by 637% Y-O-Y in 2021. Though the amount disbursed through BNPL was only 0.73 % of total loans in the case of commercial banks and 2.07 percent in the case of NBFCs, the BNPL constituted 37% of the total number of loans disbursed for commercial banks and 11.91% of the total number of loans disbursed in the case of NBFCs. Therefore, while the customer base is very high, the amount disbursed is very small. This can be explained by the fact that BNPL schemes are highly popular on e-commerce sites where they credit small consumer purchases. The increased popularity of BNPL can be attributed to the fact that traditional credit card involves extensive paperwork, hidden charges, and frauds, and is, therefore, still limited to prime and sub-prime customers.


[Image Source: Gettyimages]

But the huge growth and popularity of BNPL has put a spotlight on them and regulators have put their ire on BNPL schemes. In its recent report titled “Report of the Working Group on Digital Lending”, the Reserve Bankobserved that some private sector banks and foreign banks provided the customers with Buy Now Pay Later (BNPL) loans facility. It notes that BNPL should be treated as part of balance sheet lending and that a suitable notification might be issued by the Government of India since these products do not meet the requirements of traditional credit facilities. One of the important suggestions includes bringing BNPL loans under the definition of credit.

The traditional definition of credit doesn’t include BNPL and therefore they are able to bypass the regulations that apply to other credit providers. In fact, abroad, some BNPL providers claim to be service providers and payment gateways rather than credit providers and avoid regulation. In India, the NBFCs and banks are showing BNPL credit as deferred payment on their balance sheet but when they turn NPA, they treat it as a loan on the balance sheet. Generally, the NBFC charges no rate of interest for a small period whereafter it is turned into EMI with an interest. The fact that no interest or service fee is charged strengthens the argument that BNPL doesn’t fall in the category of credit.

The recent growth in BNPLs raises many new unanswered legal issues:

  1. Do BNPLs fall under the definition of “credit”? Should the definition of credit be changed, or a whole new set of regulations targeting BNPLs be brought?
  2. Do BNPLs boost predatory lending and if they do whether there is a need for better consumer protection regulation?

Do BNPLs fall under the definition of “credit”? Should the definition of credit be changed, or a whole new set of regulations targeting BNPLs be brought?

Presently, there is no statutory definition of “credit” in India. The Reserve Bank of India has defined what constitutes consumer credit through its master circular. Among other categories, italso includes “loans for consumer durables” asa form ofcredit. But a large portion of BNPL loans is generally not used to purchase “consumer durables”. In fact, the majority of BNPL loans are used for financing small consumer goods rather than more costly “consumer durables”.

The “Bureau of Consumer Financial Protection” in the USA defines “credit” to mean the “right granted by a creditor to an applicant to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment therefor”. When looked at through the lens of the above definition, the BNPL arrangement would qualify to be a credit since they ultimately allow deferring the payment. But in the lack of any such comprehensive definition in India, there is ambiguity as to whether BNPL falls within the purview of “credit”. Nevertheless, BNPLs are essentially credit instruments since they allow the customers to pay later and incur a debt- two essential requisites of credit. Yet BNPL doesn’t charge any interest or even service fees when the loan is paid on time. This, argued by many, exempts it from being called a credit.

Many stakeholders have called for bringing specific regulations for BNPL and argue that though they are essentially credit, they involve a whole new manner of credit creation. They argue that it may be necessary to exempt from or impose additional regulations on BNPL arrangements, aside from the minimum level of credit regulation, especially seeing the small size of the loans being disbursed. In fact, this might be a better approach to take since BNPL not only involve a small loan size, they also help in the financial inclusion of the poor.

Do BNPLs boost predatory lending and if they do whether there is a need for better consumer protection regulation?

Notwithstanding the benefits that credit brings to society, there is a need to regulate credit for the benefit of the consumer in particular and the society at large. Consumers may be myopic and might not see the larger picture while taking credit. This is especially more relevant with BNPL since they are very easily accessible to customers. In fact, the largest chunk of BNPL consumers is in the age group of 18-24 which makes it even more vulnerable to risk. Concerns include high fees, disguised fees, information asymmetry, repossession without notice, unfair default provisions, and unequal bargaining power. All these reasons call for robust consumer protection while accessing credit through BNPL.

India doesn’t have a dedicated regulation for protecting the interests of the consumer on the lines of the USA. The only dedicated law for preventing predatory lending is Usurious Loans Act, 1918. But this law is limited to the extent that it applies only to private players and banks and NBFCs are not regulated by the act. The RBI regulates the lending practices of the banks and NBFCs vide its master circular on the Fair Practice Code for Lenders. But since this regulation was not applicable for lending through contracts, the Reserve Bank,issued a comprehensive direction for P2P lending platforms in the form of ‘Master Directions – NBFC: P2P Lending Platform Directions, 2017’. It mandated that loan facilitation under a contract, online or otherwise, which is done on any platform (like amazon), should only be undertaken by an NBFC.  The NBFCs were also tasked with ensuring appropriate compliance for these platforms. However, as of September 30, 2021, only 22 companies have registered with the RBI as an NBFC-P2P, while there are about 1,100 lending apps that are available online. All of this leaves this online financial sector largely unregulated from the point of consumer protection.

Therefore, the BNPLs must be better regulated to protect the customer from predatory lending. In fact, there is a need for data protection with regard to online credit providers. Consumers should have a choice to protect their data. But, in the absence of a data protection regime, there is hardly any precedent to protect consumer data for BNPL customers.


The BNPL market is on the brink of new consumer protection regulations. It involves a whole new issue brought about by the development of financial technology. In the Indian context, with minimal consumer credit protection, a discussion on the regulation of Fin-Tech, Tech-Fin, and specifically BNPL must be done. While regulations are important, it should be kept in mind that the regulation doesn’t siphon the growth of BNPL. The BNPL has the potential to revolutionize the credit service to the poorer sections of society still untouched by credit. But at the same time, we should be mindful of a potential mountain of NPAs.

Author: Vaibhav Kashyap – a student of National Law University, Odisha, in case of any queries please contact/write back to us via email or at Khurana & Khurana, Advocates and IP Attorney.

Leave a Reply



  • May 2024
  • April 2024
  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • September 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010