The Indian stock market has witnessed a surge in retail participation in recent years, thanks to increased internet penetration, digital investment platforms, and widespread financial awareness. Among the many trends shaping this transformation, the “Buy Now, Pay Later” (BNPL) model in stock trading is one of the most controversial. While the model appears investor-friendly on the surface, it hides risks that could lead to severe financial instability—both for individuals and the market as a whole.
In this blog, we unpack the BNPL trend in the Indian stock market, explain how it works, why it’s gaining popularity, and more importantly, why it could be a ticking time bomb.
What Is Buy Now, Pay Later (BNPL) in Stock Trading?
Originally a concept popular in the retail and e-commerce sector, BNPL allows consumers to make purchases and pay for them in instalments. In the context of stock trading, it works in a slightly different manner.
Here’s how: certain brokerages and fintech platforms allow investors to “buy” stocks today and pay for them after a specified period—often a few days or up to a week. This enables investors to take positions without having the full capital upfront, essentially borrowing money for short-term trades.
Platforms often promote it as a way to seize market opportunities without liquidating other investments or waiting for fund transfers. But this freedom comes at a cost.
Why Is BNPL Gaining Popularity in the Indian Markets?
Several factors have contributed to the growing appeal of BNPL in stock trading:
Retail boom: Millions of first-time investors entered the Indian stock market post-COVID, driven by the promise of quick gains and ease of trading apps.
Aggressive marketing: Fintech platforms are marketing BNPL options as a “smart” way to trade during market volatility.
Low initial cost: For many, the ability to leverage capital with just a fraction of the upfront payment is irresistible.
FOMO (Fear of Missing Out): Retail traders fear missing out on “multibagger” opportunities and often turn to BNPL to act quickly.
The Dark Side of BNPL in Stock Trading
Artificial Buying Power
BNPL artificially inflates an investor’s buying capacity. While this may look like an advantage during a market rally, it can lead to over-leveraging. In the event of a sudden market correction, such investors are left with huge liabilities they can’t cover.
Short-Termism and Speculation
The model encourages short-term speculative trading rather than long-term investing. Investors are more likely to gamble on quick price movements rather than make informed decisions based on fundamentals.
Margin Calls and Forced Liquidation
If the price of a stock bought via BNPL drops below a certain level, platforms can automatically liquidate the position to cover the risk. This often results in losses for investors who didn’t anticipate market swings.
Debt Trap for Retail Investors
Many novice investors do not fully understand the implications of delayed payment. Interest rates, penalties, and rollovers can quickly escalate, landing them in a cycle of debt—similar to what we see with credit cards.
A Regulatory Grey Zone
The BNPL model in stock trading currently operates in a largely unregulated environment. SEBI, India’s market regulator, has made efforts to bring more transparency to leverage and margin trading, but BNPL models offered by fintech startups often fly under the radar by operating outside traditional brokerage frameworks.
If left unchecked, this could become a systemic risk—especially if defaults increase or if BNPL-backed investments form a significant portion of market liquidity.
Case Studies & Real-life Trends
A recent study showed that over 30% of retail investors who used BNPL options in 2023-24 ended up in net losses. Many of these investors admitted to not fully understanding the terms or the downside risks. Social media trading influencers, many without formal qualifications, often promote BNPL-based strategies, misleading followers with curated success stories.
International Parallels and Lessons
The U.S. and China have already seen the negative effects of high-leverage retail investing. The Robinhood-Gamestop saga in the U.S. and the over-leveraging of Evergrande-linked retail portfolios in China are cautionary tales. India should take note before history repeats itself with a uniquely desi twist.
What Should Retail Investors Do?
Educate Yourself: Understand how BNPL works before using it for trading.
Avoid Over-Leveraging: Stick to investing only what you can afford to lose.
Read the Fine Print: Don’t blindly trust what’s marketed; check the interest rates, repayment timelines, and margin policies.
Diversify & De-risk: Use BNPL cautiously and not as a primary investment strategy.
