How Buy Now Pay Later (BNPL) is Gaining Popularity in Tier 2 and Tier 3 Indian Cities

You walk into your local electronics store and purchase that new smartphone, and instead of paying the total amount at once, you split it into four payments using only a QR code to check out. This is happening in hundreds of India’s small cities right now, not just in the future. Starting in big cities, Buy Now, Pay Later saw its fastest growth in Tier 2 and Tier 3 cities, where the number of users jumped by 40% in a single year of 2024.

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Breaking Financial Barriers in India’s Heartland

For decades, consumers in smaller cities like Indore, Kochi, Lucknow, and Bhopal faced a significant credit gap. Traditional banks required extensive documentation, solid credit history, and often a physical presence – luxuries many in these regions couldn’t afford. BNPL has changed this equation entirely by offering:

Instant credit decisions – Approvals in seconds rather than days
Minimal documentation – Often just a mobile number and basic ID
Zero paperwork – Everything happens digitally
No credit card required – Making it accessible to the vast unbanked and underbanked population
Seamless integration with both online and offline shopping experiences

How BNPL Works in Smaller Cities (Tier 2 and Tier 3)?

The customer selects products at a local store or a regional e-commerce platform
At checkout, they choose the BNPL option
They scan a QR code or enter their mobile number
After a quick verification (usually OTP-based), they select their preferred repayment plan
The purchase is approved instantly, with the first instalment paid immediately
Remaining payments are automatically scheduled

What makes this particularly effective in smaller cities is the offline integration. While metropolitan BNPL usage primarily occurs online, smaller city adoption is driven by in-store experiences and offline merchants embracing digital payments.

Also read: The Future of Credit Cards: Are Digital Wallets Taking Over?

What People Are Buying?

Unlike metro consumers who typically use BNPL for fashion and electronics, smaller city consumers have different priorities:

Education expenses – Coaching fees, laptops, tablets for students
Healthcare costs – Medical procedures, equipment, and medications
Home appliances – Refrigerators, washing machines, air conditioners
Two-wheelers – Motorcycles and scooters for commuting
Agricultural inputs – Seeds, equipment, and seasonal supplies for farmers
Wedding expenses – Jewellery, clothing, and ceremony costs

The Local Merchant Perspective

Increased sales volume – Customers spend approximately 10% more when BNPL is available
Higher conversion rates – Fewer abandoned carts and walk-aways at high price points
Competitive edge against larger chains and e-commerce giants
Full upfront payment – Merchants receive the full amount immediately, with BNPL providers bearing the credit risk
Customer loyalty – Shoppers return to stores that offer flexible payment options

Challenges That Remain

Limited consumer awareness about repayment terms and late fees
Connectivity issues in areas with spotty internet coverage
Language barriers for non-English speakers
Risk of over-indebtedness as multiple BNPL services become available
Integration challenges for smaller retailers with limited digital infrastructure
Regulators have taken notice. In 2024, the RBI mandated that all BNPL transactions be reported to credit bureaus.
The Ministry of Finance announced plans in early 2025 for a certification program ensuring BNPL providers adhere to ethical standards – moves likely to bring greater stability to the sector.

The Future of BNPL in India’s Smaller Cities

BNPL options with longer tenures (6-12 months) for agricultural equipment
Education-specific BNPL products aligned with academic terms
Integration with local cooperative societies and self-help groups
Vernacular language interfaces in regional dialects
Offline functionality that works even with intermittent connectivity

The BNPL revolution in smaller cities represents more than just a payment innovation – it’s democratizing access to credit and reshaping consumption patterns across India’s heartland. By bridging the gap between traditional retail and modern financing, BNPL is helping fulfil the aspirations of millions who were previously excluded from the formal financial system. For consumers in places like Varanasi, Visakhapatnam, and Vadodara, the ability to split payments isn’t just convenient – it’s opening doors to possibilities that were once beyond reach.