Two paths to the same problem
On 15 July 2026 — "Regulation Day" — the UK's Financial Conduct Authority began formally supervising Buy Now Pay Later, or what UK law calls Deferred Payment Credit (DPC). Klarna, Clearpay, PayPal and every other DPC lender now need FCA authorisation, must run affordability checks before extending credit, fall under the Consumer Duty, and answer to the Financial Ombudsman Service if they get it wrong (FCA press release). It is the culmination of a process that began when HM Treasury decided an industry that grew from £60 million in loans in 2017 to over £13 billion in 2024 — used by roughly 20% of UK adults, or 10.9 million people, in the FCA's own Financial Lives Survey — could no longer sit entirely outside consumer-credit law (FCA: Regulating BNPL).
India never had a BNPL exemption to close, because it never wrote BNPL out of regulation in the first place. Instead, the Reserve Bank of India polices the same underlying risk — thin-file borrowers taking on short-term unsecured credit through slick app interfaces — through the balance sheets of the regulated lenders standing behind those apps. The result is a regime that is arguably more binding than the UK's new one in some respects, and far less visible in others.
The steelman for licensing BNPL directly
The FCA's case is a reasonable one. Deferred-payment products were designed to look and feel like a checkout feature, not a loan, and that framing let providers avoid the disclosure, affordability, and dispute-resolution obligations that apply to a credit card or personal loan offering identical credit. Regulators in the UK, Australia, and the EU (under the recast Consumer Credit Directive) have all concluded that consumers were taking on real debt without real protections — no standardised pre-contract information, no ombudsman recourse, and, until now, no obligation on the lender to check the borrower could actually repay. A £13 billion market touching 11 million adults is not a niche experiment; treating it identically to any other consumer credit product is a defensible baseline, not overreach.
How India does it instead
India's Reserve Bank has never issued a standalone "BNPL licence." What it has built, culminating in the Reserve Bank of India (Digital Lending) Directions, 2025 issued on 8 May 2025, is a framework that regulates the fintech app by regulating the bank or NBFC that funds it (RBI notification RBI/2025-26/36). Under these Directions, a BNPL app is legally a "Lending Service Provider" (LSP) acting as an agent of a "Regulated Entity" — a bank, NBFC, or housing finance company. Loan disbursal and repayment must flow directly between the borrower and the regulated entity, not through the fintech's own pass-through account; the fintech cannot itself extend credit without an NBFC licence.
The centrepiece of this indirect model is the Default Loss Guarantee. Many BNPL apps historically absorbed a slice of default risk to get NBFCs to fund their loan books — a first-loss cushion that let a lightly capitalised fintech effectively underwrite risk it wasn't licensed to hold. The 2025 Directions cap that guarantee at 5% of the disbursed portfolio and require upfront disclosure of the arrangement, closing a gap that had let some platforms quietly stack leverage behind the guarantee ceiling. The Directions consolidate the RBI's original September 2022 Digital Lending Guidelines and its June 2023 DLG guidance into one instrument, with most provisions effective immediately and multi-lender reporting rules phased in through November 2025.
The comparison, and its limits
The FCA model is more legible: a consumer, a journalist, or a competitor can look up whether a given BNPL brand holds authorisation. India's model is more structurally conservative — it caps the amount of risk a fintech can absorb rather than merely disclosing that risk — but it is opaque to anyone outside the regulated entity relationship, and it has visibly slowed BNPL funding. Riskier-segment platforms have struggled to raise capital precisely because the 5% DLG ceiling limits how much comfort they can offer a bank, a dynamic reflected in the RBI's own data: unsecured retail loans climbed from 18% of total bank credit in March 2016 to 25.3% by March 2024, prompting the central bank to raise risk weights on consumer credit in 2023–24 specifically to cool this growth (IMPRI policy analysis).
Both approaches are proportionate responses to a real problem, and neither is obviously superior. But India's approach carries a specific cost worth naming: because there is no dedicated BNPL authorisation, there is also no single public register a consumer can check, and no BNPL-specific ombudsman escalation path — grievances route through the regulated entity's existing (bank/NBFC) complaint channels, which vary in quality. As India's own BNPL market — estimated at roughly $37 billion in 2026 and still growing at close to 20% annually — scales past the UK's, regulators in Delhi and Mumbai should watch whether balance-sheet-level discipline is enough, or whether product-level transparency, the one thing the FCA's new regime does well, eventually becomes necessary here too.
The RBI's model regulates the money. The FCA's new regime regulates the product. India's fintech sector should not assume the first makes the second unnecessary forever.
For now, the RBI's tighter capital discipline is the more proportionate tool for a market still building basic credit infrastructure for first-time borrowers — a heavier, UK-style licensing overlay risks freezing out exactly the underwriting experimentation that has extended credit to India's thin-file population. But regulators should keep the FCA's transparency requirements on the shelf, not off the table, as the market matures.