BNPL makes a comeback as payment apps try to fix its broken economics

Summary

The latest proposition combines payments, shopping and credit: acquire customers through UPI, finance their purchases and use repayment behaviour to assess them for larger loans.

Payment apps that run their own shopping stores are reintroducing buy now, pay later (BNPL) in India.

E-commerce platform Flipkart-backed SuperMoney and fintech Razorpay-backed POP are allowing young, often first-time borrowers to buy sneakers, skincare products and gadgets in instalments, initiating longer credit relationships through small shopping loans.

POP gives users what founder and chief executive officer (CEO) Bhargav Errangi calls a "sachet limit" -- a small revolving credit line. "The customer seeking credit is increasingly a young shopper buying shoes, apparel or protein supplements, rather than financing higher-priced goods such as smartphones or televisions. We keep ticket sizes small," Errangi said.

SuperMoney's splitStore, launched in August, requires customers to pay the first instalment upfront and the remaining two over the next two months. Founder and CEO Prakash Sikaria said the upfront payment reduces risk, while the short repayment period helps avoid overburdening borrowers.

The proposition combines payments, shopping and credit: acquire customers through the Unified Payments Interface (UPI), finance their purchases and use repayment behaviour to assess them for larger loans.

Unlike traditional BNPL providers, which primarily finance purchases at other merchants' checkouts, these players also earn commissions from brands selling through their platforms.

The earlier wave, led by Simpl Pay Later and LazyPay, among others, offered checkout credit across platforms spanning food delivery, quick commerce and travel. The new entrants are betting that owning the shopping relationship and earning brand commissions will give them more room to absorb financing costs.

Errangi said POP receives 20-25% commission from brands on each sale, compared with the 2-5% revenue pool he associated with checkout financing. That gives the marketplace greater scope to accommodate funding costs and credit losses, he said.

Risky territory

SuperMoney said its daily purchase-value run rate surged about sixfold during festive sales compared with pre-festive levels, while orders rose fourfold. Fashion accounted for 42% of purchase value, followed by electronics, smartphones, and beauty and personal care.

The median order value rose to ₹2,000 from ₹890 two months ago. About 65% of shoppers were younger than 25. "We launched splitStore just two months ago, and it has already crossed $100 million in annual recurring revenue," Sikaria said.

At POP, credit-funded purchases accounted for 40% of orders within four months of the product's launch, compared with less than 10% earlier, when credit purchases were largely made through cards. Fashion accounts for 40% of its credit sales. It added more than 200 brands during the September quarter, Errangi said.

These BNPL offerings broadly mirror Swedish fintech Klarna's pay-in-four model in the US, which lets shoppers split purchases into four interest-free instalments over six weeks.

But splitting purchases into instalments does not eliminate credit risk, as lenders still face losses if customers fail to repay.

Klarna set aside 59% more money to cover expected loan losses in the December quarter than a year ago, while its shares fell about 27% in a day. By June this year, credit losses stood at 0.52% of the value of purchases processed through its platform, equivalent to ₹52 for every ₹10,000 spent.

The Klarna example shows that growing sales is not the same as building a healthy loan book. Instalments can encourage customers to buy sooner, but timely repayments determine whether that growth is sustainable.

The earlier BNPL wave also faced business failures and regulatory intervention. ZestMoney shut down in December 2023 before the DMI Group acquired its platform. In September 2025, the Reserve Bank of India (RBI) ordered Simpl to halt payment operations, months after the Enforcement Directorate filed a foreign exchange case against it. Simpl subsequently cut jobs.

The banking regulator has tightened digital lending rules, barred the loading of prepaid payment instruments through credit lines and raised capital requirements for specified unsecured retail exposures. In 2023, it capped default-loss guarantees, through which a fintech covers part of a lender's losses, at 5% of the relevant loan portfolio.

Small limits, larger ambitions

Both SuperMoney and POP founders say small limits and richer data help manage risk.

"We use payment data, shopping behaviour and SMS insights, and typically give customers without a credit history a limit of about ₹5,000. What they buy reflects both their preferences and the limits we set. That amount can cover fashion purchases, but puts premium electronics out of reach," Sikaria said.

POP's lenders also start with smaller limits and increase them as customers demonstrate repayment discipline. Errangi said lenders would rather observe behaviour on a ₹2,000 limit than immediately risk lending ₹20,000.

Repayments run largely through what Errangi described as "non-cancellable" UPI autopay mandates, which he said help "reduce the burden on collections."

Consumer durable loans, a traditional route to buying gadgets on equated monthly instalments (EMIs), are growing fast at non-banking financial companies (NBFCs), rising 56.4% year-on-year to ₹77,784 crore in August, data from the RBI showed.

Checkout financing serves three distinct needs, according to Anuradha Kumari, chief operating officer of PayU Finance, the NBFC powering POP's pay-in-three offering. Short-duration pay-later products cater to low-value, frequent purchases such as quick-commerce orders.

"The interest is driven by the affordability and flexibility it provides, particularly for consumers who may not have access to credit cards or conventional EMI options," said Kumari. For merchants, pay-in-three can help improve checkout conversions and attract customers by allowing them to spread the cost of a purchase, she added.

Sikaria said earlier BNPL providers struggled because merchant fees left little room to cover funding costs and loan losses. A platform that also runs the shopping business can earn brand commissions rather than rely solely on fees for financing purchases. His preferred model brings customer acquisition, the product catalogue and credit together on one platform.

"If you take a combination of three, you can't build a good embedded credit product," he said, referring to high funding costs, defaults and low merchant fees.