The explosion of Buy-Now-Pay-Later (BNPL) services has reshaped consumer credit and digital payments over the past few years in India. These “pay later” schemes have been aggressively adopted by e-commerce, food delivery, and travel platforms to boost convenience and sales. At the same time, regulators have grown increasingly uneasy about the risks: unsecured credit, lack of oversight, and regulatory arbitrage. In September 2025, the Reserve Bank of India (RBI) took a decisive step: ordering Bengaluru-based BNPL player Simpl to halt its payments operations, citing operation without explicit authorization.

This article examines the RBI move, traces the regulatory and business environment around BNPL in India, analyzes key issues and impacts, and concludes with prospective directions for the sector.

What Happened: RBI Order on Simpl?

In late September 2025, the RBI directed Simpl, a leading BNPL firm, to immediately suspend operations of its payment systems. The crux of the regulator’s objection: Simpl was operating clearing, settlement, and payment aggregation functions without authorization under the Payment and Settlement Systems Act, 2007 (PSS Act).

Simpl works with more than 26,000 merchants across sectors like e-commerce, food delivery, and travel. Its model allows users to defer payments (often within 15 days) without explicitly charging interest; instead, it relies on merchant fees and flat late charges.

In parallel, Simpl is under investigation by the Enforcement Directorate (ED) for alleged violations under the Foreign Exchange Management Act (FEMA). Specifically, Simpl is accused of raising approximately ₹913 crore via foreign direct investment (FDI) by classifying itself as an IT/tech services firm, instead of a financial services entity (which would require prior approval).

A Simpl executive told Times of India: “we use our own money against our own collateral, no public money is involved… we do not charge interest. We earn a merchant fee and levy a flat late fee.”

This move is part of a broader RBI push to bring digital lending and payments under stricter regulatory oversight.

Why the RBI Intervened: Key Concerns & Precedents

To understand the importance of the RBI’s action, it helps to explore the tensions between innovation and regulation in the BNPL space. Below are several core issues driving the crackdown:

Regulatory Gap and Ambiguity

The BNPL model often straddles payment and lending. Many platforms, like Simpl, argue they are payment facilitators rather than lenders. But when they aggregate payments, settle transactions, and extend short-term credit in practice, they risk falling under PSS Act or digital lending norms. Simpl’s alleged operations in clearing and settlement without authorization triggered the RBI’s concern.

A 2022 RBI directive had already barred BNPL players from topping up prepaid payment instruments (PPIs) using borrowed money, effectively forcing them closer to regulated digital lending.

Consumer Protection and Credit Risk

BNPL schemes tend to promote impulse purchases, often to younger, less credit-disciplined users. The ease of deferral can encourage overextension. Without proper underwriting, credit checks, or recourse mechanisms, defaults can cascade. Regulators are wary of weak consumer safeguards and tariff structures.

Licensing and Authorization

Under the PSS Act, any entity wishing to operate payments systems (including clearing and settlement) must obtain explicit authorization from RBI. The regulator viewed Simpl’s operations as violating these requirements.

Further, fintech entities offering financial services or taking credit risk may need NBFC (non-banking finance company) licenses or function in partnership with regulated entities. Simpl never took an NBFC license, relying instead on its "utility" model.

Capital, Disclosure, and Foreign Investment Rules

The ED’s action under FEMA casts a spotlight on structural opacity. Simpl's alleged mischaracterization of business nature to attract FDI without regulatory clearance under the financial sector rules put it in crosshairs.

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Precedents and Peer Pressure

RBI has in recent years moved against noncompliant players—e.g., halting operations of card networks using unauthorized intermediaries, or restrictions on fintechs involved in disguised credit.

Given these pressures, BNPL firms have been operating in a regulatory gray area, and Simpl was the flashpoint that prompted central bank enforcement.

Market Context and BNPL Landscape in India

To situate RBI’s move, it helps to review how BNPL has grown in India and how it compares with global peers.

Growth and Adoption

BNPL usage surged during the pandemic, when consumers preferred contactless, deferred payments.
Analysts estimate India’s BNPL market size could reach billions of dollars in the next few years (though precise figures vary).
Several fintechs, alongside e-commerce and payments companies, launched BNPL modules to increase conversion and basket sizes.

Business Models

Below is a comparative table summarizing typical BNPL business models and how they differ:

BNPL business models and traits

Model Type	Revenue Source	Customer Charges	Risk Channel / Lending Entity	Regulatory Leverage
Merchant-paid fee only	Merchant commission/fee	Minimal or none (late fees)	Platform bears default risk	Regulatory scrutiny if performing settlement functions
Split-instalment (platform as lender)	Interest or merchant subsidy	Instalment interest, late fee	Platform gives credit itself	May need NBFC / lending license
Bank/NBFC partner model	Platform commissions	Interest & fees via lending partner	Lending partner carries credit risk	Platform acts as facilitator, lending regulated entity bears burden
Hybrid / ledger-style	Merchant fees + penalty	“Interest-free” default charges	Platform or partner	Regulatory scrutiny if doing payments/clearing

Before the table, readers should note that BNPL platforms often blend features of payments and credit, complicating their regulatory classification. After the table, it becomes clear that when platforms begin doing payments/settlement in-house, the legal jurisdiction becomes contentious.

The table illustrates that many BNPL models revolve around merchant fees, delayed repayments, and distribution partnerships with banks or NBFCs. Only when platforms take on settlement roles and credit issuance does regulatory exposure intensify.

Impacts of the RBI Crackdown

RBI’s action against Simpl is not just a one-off—it signals broader consequences across fintech, merchants, and consumers. Here are key anticipated impacts.

1. Business Disruptions for BNPL Players

Simpl must suspend payment operations, which impairs merchant settlement flows and customer experience. Some merchants dependent on Simpl’s payments rails could see liquidity stress. Later, BNPL firms may need to recast their business models, align with banks or NBFCs, or obtain required licenses.

Moreover, investors might become wary of regulatory risk, slowing capital inflows into unregulated fintechs.

2. Consumer Access and Trust

Consumers using BNPL for convenience may face service disruptions, denied purchases, or delays in refunds or settlements. But in the longer term, bringing BNPL under regulatory supervision may improve disclosure, grievance redressal, and protections.

3. Merchant Relations and Payment Ecosystem

Merchants will have to re-evaluate their BNPL partnerships, particularly with smaller fintechs. They may prefer tying up with regulated lenders or switching to card/UPI alternatives. The broader payments ecosystem may consolidate around players with regulatory compliance, reducing fragmentation.

4. Regulatory Precedent and Market Discipline

The RBI move sends a clear message: no entity can operate regulated payment or settlement activities without authorization. This may prompt self-regulation or consolidation among BNPL providers. Others may move to seek NBFC status or structure themselves as tech platforms for genuine lenders.

5. Legal, Compliance, and Risk Costs

Firms will incur higher compliance and audit costs. They must maintain capital adequacy, risk management, consumer protection protocols, disclosures, and adhere to FEMA/FDI rules more strictly.

Learn More - Personal Loan vs. Buy Now, Pay Later

Comparative View: RBI vs Global BNPL Regulation

Regulators across jurisdictions have grappled with BNPL. A quick comparison:

Australia: the Australian Securities & Investments Commission (ASIC) has proposed stricter regulation of BNPL as a credit product, with clearer disclosure obligations.
UK / Europe: Some BNPL offerings fall under credit regulations, requiring firms to hold consumer credit licenses and adhere to affordability checks.
United States: BNPL is variably regulated state by state; the Consumer Financial Protection Bureau (CFPB) has scrutinized risks of hidden fees and transparency.

India’s RBI intervention may align India with global trends: imposing stronger oversight over “embedded credit” products.

Table: Timeline of Regulatory Actions on Digital Lending & Payments (India)

Below is a timeline table summarizing key regulatory interventions in digital lending, payments, and BNPL in India over recent years:

Major regulatory interventions in India’s digital credit/payments sector

Year	Intervention	Description / Impact
2022	RBI restricts BNPL topping up of PPIs	BNPL firms cannot top up prepaid instruments using borrowed funds, pushing them toward digital lending norms
2023	RBI tightens norms for payment aggregators (master directions)	Heightened compliance, risk assessment requirements for aggregators handling payments
2024	Enforcement action on card networks for unauthorized flows	RBI penalizes card flows routed via unauthorized intermediaries
2025 (Sept)	RBI orders Simpl to halt payment operations	Simpl is directed to stop functions of payment, clearing, settlement for lack of authorization
2025 (ongoing)	ED / FEMA probes on FDI misclassification in fintech	Simpl under investigation for alleged ₹913 crore FDI misclassification

Before this table, it’s useful to understand that the regulatory environment has been tightening gradually. After the table, it shows that the RBI’s action against Simpl is the latest, and perhaps most forceful, intervention in a sequence of steps intended to bring digital credit under governance.

Challenges and Open Questions

While the RBI’s move is bold, it raises a number of challenges and unresolved questions:

Transition path: How will Simpl and other BNPL players reconfigure within the law? Will they partner with banks, get NBFC licenses, or limit themselves to pure facilitation?
Cost burden: Smaller startups may struggle to absorb regulatory compliance costs, leading to market consolidation.
Credit access tradeoff: Stricter rules may slow BNPL growth or limit access for underserved consumers.
Regulatory capacity: Can RBI and associated agencies scale supervision to effectively monitor hundreds of BNPL and fintech firms?
Legal appeals: Firms may contest regulatory categorization (payments vs lending) in courts, potentially delaying implementation.
Harmonization: How to align BNPL rules with broader financial sector regulation (NBFCs, consumer credit, payments, data privacy)?

These open questions will determine how the BNPL sector evolves in coming years.

Conclusion

The RBI’s recent order directing BNPL player Simpl to cease payments operations marks a watershed in India's fintech regulation. While BNPL has offered convenience and growth for merchants and consumers alike, its hybrid nature, straddling credit and payments, posed significant regulatory risks.

Through this intervention, the RBI signals that no entity can operate payments, settlement, or credit intermediation functions without explicit authorization and compliance.

Going ahead, BNPL firms must reassess their models, possibly collaborate with regulated lenders, secure necessary licensing, and strengthen risk and compliance frameworks. For consumers and merchants, the transition may entail short-term disruption but promises stronger protections, transparency, and stability in the long run.

In sum, the RBI crackdown is not simply a punitive measure, but a structural recalibration of India’s digital finance ecosystem, intended to align innovation with prudence, consumer trust, and systemic stability.

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