Lesson 1 of 3 · 6 min
It is credit, not a payment button
Pay-later sits next to UPI at checkout, but a lender is paying the shop and you owe that lender — which is why RBI's digital lending rules cover it.
A pay-later button at checkout looks like a payment method sitting beside UPI and cards. Underneath, the shop is paid in full today by somebody else, and you owe that somebody else. That is borrowing, and the Reserve Bank treats it as lending.
The Reserve Bank of India (Digital Lending) Directions, 2025 apply to lending done through digital lending apps, whoever built the screen you tapped. The brand on the button is often not the lender at all — a bank or an NBFC is whose money went to the shop, and whose money you now owe.
Because it is lending, the 2025 directions attach disclosure to it. Clause 6(iii) says a screen showing loan offers carries the name of the regulated entity extending it, alongside the terms — so who you are borrowing from is something you get told before you tap. Clause 8(i) requires a Key Fact Statement.
Clause 4(i) defines the all-in cost as an annual percentage rate, which is what makes a fee on a four-week loan comparable to any other borrowing. Clause 7(ii) adds that a credit limit does not go up on its own: an increase needs an explicit request from you, evaluated and kept on record.
| What the rules require | Why it matters to you |
|---|---|
| The name of the regulated entity making the loan — clause 6(iii) | The app is a shopfront. The lender is who you owe, who reports the account, and who a complaint is actually about. |
| A Key Fact Statement — clause 8(i) | The cost in one place, rather than scattered between a checkout screen and a schedule of charges. |
| An annual percentage rate, defined in clause 4(i) | A small flat fee on a four-week loan is a large annual rate. The APR is the number that shows its size. |
| An exit during the look-up period — clause 10(i) | An explicit route out by paying the principal and the proportionate APR without penalty, over a period the lender's board fixes, of at least one day. |
Myth
“Pay-later is a payment method like UPI. Nothing is being borrowed, so nothing follows me.”
False
Clause 16(i) of the 2025 digital lending directions requires lending done through digital lending apps to be reported to credit information companies irrespective of its nature or tenor. A four-week instalment plan for a ₹2,800 order is lending, so it is reportable in the same way a loan is. The button sits beside UPI at checkout; what happens behind it is a lender paying the shop and a debt in your name — one that a future lender reading your credit report can see.
Quick check
You tap pay-later for a ₹2,800 order. The shop is paid today. Who do you owe, and how much of it?
Check yourself
1 / 3
Kabir asks
Whose name do the 2025 digital lending directions require on a screen showing a loan offer?
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