new regulation coming

Is India banning Buy Now Pay Later solutions?

buy now pay later to be regulated in india

As reported by local media, LazyPay, the lending arm of PayU India, has temporarily stopped support for its BNPL (buy now pay later) payment product LazyPlus-UPI amid rising regulatory concerns for card-based credit fintech firms. 

Here is the question: is India banning Buy Now Pay Later solutions? Not really, but the government is ready to fix the sector. Let’s see what’s going on.

LazyPay stops BNPL payment product amid PPI concerns 

Few days ago, millions of Indian consumers received a notification informing them that LazyPay is “until unknown time” impossible to use. 

The BNPL platform, launched by PayU in September 2020, allowed users to pay through the unified payments interface (UPI) channel from a revolving credit line issued to the customer. LazyPay was issuing a credit line of up to Rs 1 lakh to users for undertaking online and offline transactions through UPI. 

And here is the problem. As reported by Economic Times of India, “LazyPlus UPI had stopped onboarding new users last year as banking partners pulled out of the arrangement”. Thus, something was moving underwater.

RBI: “nonbanks can no longer load prepaid instruments”

The ban was executed directly by the Reserve Bank of India. In fact, the decision to block LazyPay came as the Indian Central Bank sent the fintech industry into a tizzy last month after it sent a directive to industry stakeholders disallowing prepaid payment instruments (PPIs) from being loaded with credit lines. 

More specifically, the central bank on June 20, 2022, issued a notification to fintech firms or non-banking institutions “forbidding them from the 'buy now, pay later' service. The new RBI guidelines stated that nonbanks can no longer load prepaid instruments — digital wallets, or stored-value cards — using credit lines”. 

LazyPay had updated its terms and conditions after the RBI directive, asking customers to accept new terms and conditions, failing which all their transactions will be blocked across the platform. 

The company is in talks with State Bank NSE of Mauritius (SBM) Bank India to relaunch its card offerings, post which it might resume the LazyPlus UPI services. 

But the service is still blocked. Other fintech firms such as Jupiter, EarlySalary and KreditBee have also temporarily stopped customers from making any transactions on their prepaid cards. 

The sector is growing, but it needs rules

Is it the end of the BNPL model in India? Not yet, but rough times are coming. According to experts, BNPL products are targeted to those buyers who do not have credit cards. 

A report released by financial technology company FIS said that BNPL is India’s fastest-growing online payment method. It is projected to rise to 8.6 per cent of e-commerce market value by 2025, up from just 3 per cent in 2021, a report in The New Indian Express mentioned. 

But in its statement the central bank has further said that the BNPL model needs to be examined and guidelines need to be framed for the new scheme in the lending domain.

Right now Indian banks are rethinking their partnerships with credit card-based fintech firms, as they continue to be unsure about the regulator’s stance. 

On June 30 even RBL Bank told its co-branding card fintech partners that it would stop support services by the end of the summer.