The Rise of Buy Now, Pay Later

Introduction

The Buy Now, Pay Later (BNPL) model is revolutionizing consumer purchasing behaviour, allowing shoppers to acquire products and spread payments over time without interest. As an alternative to traditional credit cards and personal loans, BNPL services like Afterpay have gained significant traction, particularly among younger, tech-savvy consumers. While this payment option increases affordability and convenience, it also raises concerns about potential financial pitfalls, leading to regulatory scrutiny.

Understanding BNPL

BNPL is a short-term financing solution that enables consumers to buy products instantly and defer payment over multiple instalments. Unlike credit cards, BNPL typically offers interest-free repayment, provided payments are made on time. The process involves a simple sign-up, often integrated seamlessly at online and offline retail checkouts, and requires minimal credit verification.

Key takeaways of BNPL include:

1. Short-term financing with structured instalment plans
2. No interest is charged if payments are made on time
3. Easier approval compared to traditional loans
4. Possible effect on credit scores if payments are missed.

How BNPL Works

1. SHOP: Customer Browse and fill their carts with products they want to buy.
2. CHECKOUT: Determine the total purchase value with taxes and shipping.
3. SELECT BNPL: Rather than a Credit or debit card , choose buy now pay later options as the payment method.
4. Pay Later: Pay for your purchaseover time in a series of instalments.

Benefits of BNPL:

For both consumers and businesses:

For Merchants, Banks and Pay Tech Companies:

How BNPL Providers Generate Revenue

BNPL companies make money through multiple channels:

1. Merchant fees: Retailers pay BNPL providers a commission (2%-8% of the transaction value) to offer this service.
2. Consumer fees: While interest is typically not charged initially, late payments incur penalties and interest (ranging from 10% to 30%).
3. Marketing partnerships: BNPL platforms collaborate with retailers for promotional campaigns to drive consumer spending.

Impact of BNPL on Consumer Spending

Research has shown that BNPL significantly boosts consumer spending. A study analyzing 75,000 consumers who adopted BNPL and 200,000 who did not found that:

1. BNPL adoption increased purchase likelihood from 17% to 26%
2. Basket sizes grew by an average of 10%
3. Spending increases lasted up to six months, demonstrating long-term behavioral changes.

Financially constrained consumers, especially those relying on credit, benefited the most. Their average purchase size grew by 14%, compared to a 3% increase among financially stable shoppers.

BNPL in India: Market Analysis

India’s BNPL market is projected to grow from USD 17.96 billion in 2025 to USD 31.82 billion by 2030, with a CAGR of 12.12%. The rapid expansion is driven by factors such as:

1. Limited access to traditional credit: BNPL is a viable alternative for those without strong credit histories.
2. High digital adoption: Widespread internet and smartphone usage make digital lending solutions more accessible.
3. Consumer preference for flexible payments: Tech-savvy shoppers favour seamless digital transactions with minimal documentation.
4. No-cost and low-interest options: BNPL solutions are cost-effective compared to credit cards.

Difference Between BNPL and Credit Cards

Feature	BNPL (Buy Now, Pay Later)	Credit Cards
Interest Charges	Often interest-free if payments are made on time	Charges interest on carried-over balances
Approval Process	Approval Process Minimal credit checks, accessible to those with limited credit history Requires thorough credit assessment	Approval Process Minimal credit checks, accessible to those with limited credit history Requires thorough credit assessment
Repayment Structure	Fixed installment plans with a clear repayment schedule	Revolving credit with flexible minimum payments
Late Fees and Penalties	Late payments lead to penalties and restrictions on future use	Missed payments result in high-interest charges and potential credit score impact
Merchant Fees	Retailers pay transaction fees for BNPL services	Credit card companies charge merchants a percentage of each sale

Conclusion

The Buy Now, Pay Later (BNPL) model is transforming consumer shopping and payment habits, offering both benefits and challenges. Its flexibility and affordability make it an attractive alternative to traditional credit, particularly for younger consumers like Gen Z, who favor seamless, integrated payment solutions. By enabling shoppers to split payments easily, BNPL enhances both e-commerce and in-store transactions. However, responsible usage is essential to avoid financial pitfalls. As regulatory frameworks evolve, the BNPL ecosystem is expected to grow sustainably, promoting fair practices for consumers and businesses alike.

Disclaimer

The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. The content of this article is not intended to create and receipt of it does not constitute any relationship. Readers should not act upon this information without seeking professional legal counsel.