BNPL 2.0: Regulation, Credit Reporting & Survival Strategies for Fintechs
The BNPL Boom Meets Its Reality Check
Buy Now, Pay Later (BNPL) was once fintech’s golden child — the millennial and Gen Z-friendly payment method that promised convenience without the scary credit card bills. From small online purchases to big-ticket electronics, BNPL companies like ZestMoney, LazyPay, and Simpl turned “zero-cost EMI” into a lifestyle.
Globally, giants like Klarna, Afterpay, and Affirm rode the wave to multi-billion-dollar valuations. In India, BNPL transactions surged 21x between 2019 and 2022. The promise? A frictionless, no-paperwork way to shop now and pay over time.
But just as the party reached its peak, regulators turned on the lights. RBI guidelines in mid-2022 changed the game overnight — banning certain prepaid credit instruments, tightening KYC norms, and bringing BNPL under the umbrella of regulated lending. The BNPL honeymoon was over, and the industry had to grow up — fast.
Let’s unpack what BNPL 2.0 looks like in the post-regulation era, how credit reporting will reshape the sector, and what survival strategies fintechs must adopt to stay relevant.
Understanding BNPL’s Rise — and Why It Triggered Regulation
🚀 The Growth Story
BNPL appealed to a generation skeptical of traditional credit cards. No joining fees, instant approvals, and the ability to split payments into 3–6 interest-free installments made it irresistible. For merchants, BNPL boosted cart sizes and conversion rates — a win-win.
In India, BNPL filled a gap that credit cards left wide open. While only 3% of Indians own a credit card, over 300 million have access to smartphones and UPI. BNPL bridged that gap with app-based credit lines that felt more like payments than loans.
🚨 The Problem Regulators Saw
The rapid expansion worried the Reserve Bank of India for three main reasons:
- Shadow Lending Risks – Many BNPL players operated without a full NBFC license, partnering with regulated lenders but effectively running quasi-lending operations.
- Consumer Over-Indebtedness – The ease of BNPL often led to users juggling multiple loans across apps without realizing the total liability.
- Lack of Credit Bureau Reporting – Many BNPL transactions went unreported, creating invisible debt that didn’t reflect in credit scores.
The RBI’s 2022 circular on digital lending was the first real clampdown — pushing the sector into what we now call BNPL 2.0.
The Regulatory Shake-Up: What Changed in BNPL 2.0
1️⃣ Mandatory Credit Bureau Reporting
Every BNPL loan — no matter how small — now has to be reported to credit bureaus like CIBIL or Experian. This closes the “invisible debt” loophole but also means late payments now have lasting consequences for borrowers.
Impact:
- Users can build (or damage) credit scores through BNPL.
- Lenders get better visibility into borrower liabilities.
2️⃣ Lending Must Happen via Regulated Entities
BNPL fintechs without NBFC licenses can no longer directly disburse funds. They must partner with a bank or NBFC, with all transactions happening from the lender’s books.
Impact:
- Increased operational complexity for fintechs.
- More transparency in loan disbursal.
3️⃣ No More Wallet-Based Credit Loading
The RBI banned loading prepaid payment instruments (PPIs) like wallets with credit lines. This shut down a popular workaround where fintechs issued credit that looked like prepaid balances.
Impact:
- Forced fintechs to restructure payment flows.
- Reduced instant credit disbursement speed.
4️⃣ Stricter KYC & Data Sharing Norms
Full KYC is now mandatory for all BNPL customers, and user data sharing with third parties has been tightened.
Impact:
- Higher compliance costs.
- Lower risk of identity fraud.
Credit Reporting: The Double-Edged Sword for BNPL
BNPL’s biggest selling point — “credit without the baggage” — is now gone. Credit bureau integration brings transparency but also risk for borrowers who miss payments.
📈 The Upside
- Credit Score Building: Responsible use of BNPL can help young users with no prior credit history establish a credit profile.
- Lower Risk for Lenders: Real-time visibility into total debt reduces default risk.
📉 The Downside
- Higher Default Impact: A single missed BNPL payment can now tank a user’s score.
- Reduced Impulse Usage: Users may hesitate to use BNPL for small purchases if it risks their credit history.
Global Lessons: What India Can Learn
- Klarna (Sweden) – Shifted from pure BNPL to full-scale banking services under tighter EU rules.
- Afterpay (Australia) – Acquired by Block, pivoted toward integration with mainstream payments.
- Affirm (USA) – Focused on high-value purchases and transparent terms to avoid regulatory heat.
Key takeaway: BNPL players that survive pivot toward more responsible lending, longer-term products, and integration into regulated financial ecosystems.
Survival Strategies for BNPL Fintechs in India
1️⃣ Diversify Revenue Streams
Relying purely on merchant discount rates (MDR) is risky. Consider subscription models, embedded finance products, or B2B credit solutions.
2️⃣ Move Up the Credit Value Chain
Offer higher-ticket, longer-tenure loans with transparent pricing — something that can compete with personal loans.
3️⃣ Focus on Credit Education
Proactively educate customers about repayment discipline and credit score impact. Apps with built-in repayment reminders and budgeting tools will stand out.
4️⃣ Partner with Traditional Lenders
Strong NBFC and bank tie-ups can ensure compliance while allowing fintechs to keep their UX advantage.
5️⃣ Explore Co-Lending Models
Sharing risk with regulated lenders can keep margins healthy and default rates manageable.
The Future of BNPL in India: 5 Predictions
- BNPL will shrink in volume but grow in quality.
- Credit bureau integration will push out high-risk borrowers.
- BNPL will merge with credit cards and UPI-linked credit lines.
- Merchant-specific BNPL offers will rise.
- Regulated BNPL players will outlast the rest.
Conclusion: BNPL 2.0 Isn’t the End — It’s a Reset
The RBI’s crackdown didn’t kill BNPL — it forced it to evolve. In BNPL 2.0, only players who balance regulatory compliance, responsible lending, and user convenience will thrive.
The winners will be those who pivot from “fast credit” to “smart credit” — turning BNPL from a casual checkout option into a trusted financial tool.
