India’s payment landscape is changing fast. Millions of consumers now prefer to shop first and pay in instalments — without a credit card. This shift has given rise to one of the most exciting fintech opportunities in the country: the Buy Now Pay Later (BNPL) business model in India.
But how exactly does BNPL work as a business? How do BNPL companies make money? And more importantly, how can Indian entrepreneurs enter or leverage this space?
In this article, we break down everything you need to know — from the core mechanics to revenue streams, key players, regulations, and growth opportunities.
What Is the Buy Now Pay Later Business Model in India?
Simply put, Buy Now Pay Later (BNPL) is a short-term, interest-free (or low-interest) credit facility. It allows consumers to purchase a product or service immediately and then pay for it in equal installments over weeks or months.
Unlike traditional EMIs linked to credit cards, BNPL offers instant approval with minimal documentation. As a result, it appeals strongly to India’s large underbanked population — people who want credit but do not own a credit card.
Here is a simple example: A customer buys a ₹6,000 pair of shoes on an e-commerce platform. Instead of paying the full amount upfront, they choose BNPL and pay ₹2,000 each month for three months — with zero interest.
How Does the Buy Now Pay Later Business Model Work in India?
The BNPL ecosystem in India typically involves three key parties working together:
1. The Consumer
The buyer selects the BNPL option at checkout. The BNPL provider instantly evaluates their creditworthiness using AI-driven risk models. Within seconds, the buyer receives approval and completes the purchase.
2. The Merchant
The merchant receives the full payment immediately from the BNPL provider. In return, they pay a small merchant discount rate (MDR) — typically between 1.5% and 3%. This is a worthwhile trade-off because BNPL significantly boosts conversion rates and average order values.
3. The BNPL Provider
The BNPL company acts as the credit intermediary. It pays the merchant upfront, collects repayments from the consumer in instalments, and earns revenue through multiple channels.
Consequently, the BNPL provider carries the credit risk. Therefore, robust underwriting and data-driven risk assessment are central to a sustainable BNPL operation.
How Do BNPL Companies Make Money? (Revenue Streams)
Understanding the revenue model is crucial for any entrepreneur considering this space. BNPL providers in India earn revenue through four primary channels:
- Merchant Fees (MDR): The primary revenue source. Merchants pay 1.5%–3% per transaction for guaranteed and instant payment.
- Late Payment Fees: When consumers miss a repayment deadline, the BNPL company charges a penalty fee. This is a significant, though secondary, revenue stream.
- Interest on Long-Term Plans: For repayment periods beyond 3 months, most BNPL providers charge interest — typically between 15% and 24% per annum.
- Data Monetisation & Partnerships: Leading BNPL platforms use anonymised consumer spending data to offer targeted financial products, cross-sell insurance, or build co-branded credit products with banks and NBFCs.
Moreover, as BNPL platforms scale, they often transition into full-stack digital lending platforms — offering personal loans, credit lines, and embedded finance products. This diversification is how players like LazyPay and ZestMoney have evolved.
Why Is the BNPL Market in India Growing So Fast?
The buy now pay later business model in India is thriving for several compelling reasons:
- Low Credit Card Penetration: India’s credit card penetration stands at just around 5%. Yet hundreds of millions of consumers want access to credit. BNPL fills this massive gap effectively.
- Young, Digital-First Population: India has over 500 million internet users, many of whom are millennials and Gen Z shoppers who prefer flexible, app-based payment solutions.
- UPI Infrastructure: India’s UPI ecosystem, which processes over 16 billion transactions per month, provides the perfect digital rail for embedding BNPL products at checkout.
- Tier-2 & Tier-3 City Growth: BNPL adoption in smaller cities grew by 40% in 2024. These markets represent a massive untapped opportunity for entrepreneurs.
- E-Commerce Boom: India’s e-commerce sector grew by 27% in 2023, creating millions of new online shoppers who are open to flexible payment options.
Furthermore, the Indian BNPL market was valued at approximately USD 24.86 billion in 2025 and is projected to reach USD 62.61 billion by 2031 — growing at a CAGR of 15.5%. This makes it one of the fastest-growing BNPL markets in the world.
Key Buy Now Pay Later Business Model Players in India
Before you enter this market, it is important to understand who is already operating in this space:
- LazyPay (backed by PayU): One of the most widely used BNPL apps in India, integrated across hundreds of e-commerce platforms.
- Simpl: Focuses on the online checkout experience, partnering with D2C brands and food delivery platforms.
- Amazon Pay Later: Amazon’s own BNPL solution, powered in partnership with Capital Float, available exclusively within its ecosystem.
- ZestMoney: A consumer lending platform that pioneered no-cost EMI for users without credit cards, though it has since restructured.
- Paytm Postpaid: Paytm’s BNPL product is embedded across its large merchant and consumer base.
Additionally, traditional banks like ICICI and HDFC are launching their own cardless EMI and BNPL-adjacent products, blurring the lines between fintech and legacy finance.
RBI Regulations Every Entrepreneur Must Know
Operating a BNPL business in India requires navigating a complex regulatory environment. The Reserve Bank of India (RBI) has tightened its oversight considerably since 2022.
Key Regulatory Rules
- BNPL providers cannot load credit lines onto Prepaid Payment Instruments (PPIs) directly. Instead, they must partner with a registered NBFC or bank as the lender of record.
- All BNPL transactions must be reported to credit bureaus — including the Credit Information Bureau India Limited (CIBIL) — ensuring consumer debt visibility.
- Providers must clearly disclose all fees, interest rates, and repayment terms at the point of purchase. Transparency is non-negotiable under the RBI’s digital lending guidelines.
- KYC (Know Your Customer) compliance is mandatory for all users before credit is extended.
Therefore, if you plan to build a BNPL startup in India, you must either obtain an NBFC licence or partner with a regulated entity. The latter approach — often called ‘lending-as-a-service’ — is increasingly popular among new entrants in 2025.
How Can Indian Entrepreneurs Enter the BNPL Space?
There are multiple viable entry points for entrepreneurs in the BNPL ecosystem. You do not necessarily need to build a full-stack BNPL platform from scratch.
Option 1: Build a Niche BNPL Platform
Instead of competing with LazyPay or Simpl across all sectors, consider targeting an underserved vertical — such as healthcare, EdTech, travel, or agricultural equipment. Niche BNPL platforms face less competition and build stronger product-market fit.
Option 2: BNPL-as-a-Service for Merchants
Many small merchants want to offer BNPL at checkout but lack the technology. Consequently, entrepreneurs can build white-label BNPL infrastructure — similar to a payment gateway — and charge merchants a platform fee plus MDR.
Option 3: Become an Embedded Finance Partner
If you already run a marketplace, SaaS platform, or e-commerce business, you can integrate a BNPL partner’s API into your checkout. This way, you earn referral commissions without taking on credit risk yourself.
Challenges to Watch Out For
While the opportunity is significant, entrepreneurs must also be aware of the key challenges in the BNPL space:
- Credit Risk & NPAs: Rising non-performing assets (NPAs) in the unsecured credit segment are a growing concern. Sound underwriting is critical.
- Regulatory Compliance Costs: Partnering with an NBFC or obtaining your own licence involves significant legal and compliance costs.
- Customer Acquisition Cost (CAC): Acquiring and retaining creditworthy users in a competitive market requires substantial marketing investment.
- Unit Economics: Many early BNPL players burned cash on growth. Sustainable profitability demands disciplined focus on repayment rates and merchant fees.
Conclusion
The buy now, pay later business model in India represents a genuine, large-scale fintech opportunity. It bridges the gap between India’s massive consumer base and its relatively low credit card penetration — a gap that no other product has filled as effectively.
However, success in this space demands more than a great product. It requires regulatory compliance, a sound lending partnership, disciplined unit economics, and a clear strategy for managing credit risk.
Whether you build a niche BNPL platform, a white-label solution for merchants, or embed BNPL into an existing business, the timing is excellent. The infrastructure is in place, the consumer demand is real, and the regulatory framework — while evolving — is gradually maturing.
Therefore, now is the right time for Indian entrepreneurs to study this model closely, identify their entry point, and build a sustainable BNPL-powered business.
FAQs
Q1. Is BNPL legal in India?
Ans. Yes, BNPL is legal in India. However, the RBI mandates that only licensed banks and NBFCs can act as lenders. BNPL fintech companies must partner with a regulated entity to legally extend credit to consumers.
Q2. How is BNPL different from a credit card EMI in India?
Ans. BNPL requires no physical card, no annual fee, and offers instant approval — often within seconds. In contrast, credit card EMIs require a credit card issued by a bank, which involves a longer application process and is unavailable to a large portion of India’s population.
Q3. What is the best BNPL business model for a startup in India?
Ans. For most startups, the BNPL-as-a-Service model or a niche vertical BNPL platform offers the best balance of opportunity and manageable risk. Building a full-stack consumer BNPL platform requires significant capital, an NBFC partnership, and strong risk management capabilities.
Q4. How much does it cost to start a BNPL business in India?
Ans. The cost varies widely. A technology-only BNPL solution (partnering with an existing NBFC) can be launched for ₹50 lakh to ₹2 crore. However, obtaining an NBFC licence and building a full-stack platform requires ₹10 crore or more in capital.
Q5. What is the future of the BNPL market in India?
Ans. The Indian BNPL market is projected to grow from USD 24.86 billion in 2025 to USD 62.61 billion by 2031. Growth will be driven by UPI-embedded credit lines, expansion into Tier-2 and Tier-3 cities, and rising adoption across healthcare, education, and travel sectors.
