Buy Now Pay Later (BNPL) has rapidly evolved into one of the world’s most popular forms of consumer credit. Its appeal lies in the convenience it offers: instant approvals, seamless digital journeys, and the widespread perception that BNPL is “free” because it is often marketed as zero-interest. However, while the headline message emphasises affordability, the reality is more complex. BNPL products differ significantly across countries, and the role of interest—whether explicit or hidden—has become a central point of global regulatory discussion.
At the heart of BNPL’s popularity is the merchant-funded model. In many countries, BNPL providers earn a large portion of their revenue from merchant discount fees rather than interest charged to customers. Merchants willingly pay these fees because BNPL increases sales conversions and encourages customers to spend more per transaction. As a result, many short-term instalment products, such as “pay in 3” or “pay in 4,” appear interest-free to consumers. This structure has enabled the zero-interest narrative that underpins much of BNPL’s global growth.
Yet not all BNPL products are interest-free. In reality, BNPL operates along a spectrum. Short-term, small-ticket products typically do not charge interest, while longer-tenure instalment plans—especially those used for higher-value purchases—often carry an interest component. The approach varies by provider and jurisdiction. In the United States, for instance, companies like Affirm offer interest-free loans for select merchants but apply APRs ranging from 0 to 36 percent for longer-term instalments. In India, banks and NBFCs frequently convert BNPL transactions into EMIs that carry interest rates similar to traditional consumer loans, especially when merchants do not subsidize costs. In Europe, long-tenure BNPL is treated much like regulated consumer credit, requiring clear disclosure of interest rates and fees.
The global regulatory landscape is rapidly shifting as policymakers attempt to define BNPL within their existing consumer credit frameworks. In the United Kingdom, the Financial Conduct Authority is moving toward bringing BNPL under regulated credit rules, which will require providers to conduct affordability checks and clearly disclose any costs, including interest-bearing variants. Across the European Union, revisions to the Consumer Credit Directive similarly mandate creditworthiness assessments and transparent APR disclosures for longer-tenure BNPL. Australia, once dominated by interest-free BNPL providers, is increasingly scrutinizing business models that rely on monthly platform fees or late charges, which regulators argue may function as “shadow interest.” Singapore has introduced a code of conduct that obligates BNPL players to cap fees and disclose effective costs, while India has taken a more stringent approach by categorizing BNPL as a credit product, requiring full KYC, bureau reporting, and compliance with digital lending guidelines.
A major area of concern globally is the presence of indirect or hidden interest in products marketed as zero-interest. Even when the consumer is not explicitly charged interest, the true cost of credit may be reflected in higher product prices due to merchant discount fees, monthly usage charges, processing fees, or penal late fees. Regulators in markets such as the UK, Australia, and the EU are increasingly focused on ensuring that consumers understand these implicit costs, arguing that the lack of transparency can lead to poor financial decision-making and over-indebtedness. As a result, many jurisdictions are considering rules requiring BNPL providers to calculate and display an equivalent APR that reflects the real economic cost of the credit.
Globally, regulators share similar concerns: the risk of consumers taking on more debt than they can manage; the lack of clear affordability assessments; inconsistent disclosure standards; and the possibility that interest-free marketing may obscure the true cost of borrowing. These issues have pushed BNPL providers toward greater transparency and accountability, marking a shift from an era of unregulated growth to one of structured oversight. As regulatory scrutiny intensifies, the distinction between BNPL and traditional consumer lending is narrowing, particularly in markets where longer-tenure BNPL resembles standard instalment credit.
Looking ahead, the interest component in BNPL is likely to evolve in tandem with regulatory expectations. Providers may increasingly disclose standardized APRs, even for fee-based products. Long-term BNPL will likely be treated as conventional credit, requiring robust underwriting and consumer protections. Countries may impose interest or fee caps, as seen in Singapore, while mandatory credit bureau reporting will become more common to prevent over-borrowing. Additionally, banks and NBFCs—whose lending practices already meet regulatory standards—are expected to play a larger role in offering BNPL, bringing greater transparency to pricing and interest structures. Merchant-funded interest subsidies will remain a defining feature of BNPL, but these too may be brought under disclosure requirements to ensure that consumers fully understand the financial implications of their transactions.
In conclusion, the perception that BNPL is universally interest-free does not hold true when viewed through a global lens. BNPL, in its various forms, incorporates interest both explicitly and implicitly, depending on market structure, merchant subsidies, and regulatory environments. As BNPL continues to grow and become a mainstream credit option, its long-term sustainability will depend on clear communication of costs, responsible lending practices, and a regulatory framework that balances innovation with consumer protection. Regulators have started acting, with a view to balance product innovation and consumer protection ,
- Affirm Holdings Annual Report 2023:
- ASIC: Buy Now Pay Later: The Industry and Consumer Impact (2022):
- CFPB: Buy Now, Pay Later: Market Trends and Consumer Impacts (2022).
- FCA: BNPL Regulation Consultation Paper (2023):
- CP25/23 (2025). Still a draft
- RBI: Guidelines on Digital Lending (2025):
- Singapore FinTech Association and MAS: BNPL Code of Conduct (2022):
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