BNPL and No Cost EMI at an Indian D2C Checkout

Affordability at checkout is not a feature you switch on. It is a financing arrangement with a cost line attached, and somebody funds it. On an Indian D2C site, that somebody is almost always the brand.

Who actually funds no cost EMI

No cost EMI is not zero interest. RBI said as much in a 2013 circular and has not softened since. The bank still books an interest bearing loan against the customer. The customer sees three or six equal instalments with no visible interest because the interest was paid up front by you, either as a discount on the principal or as a cashback the lender pushes back to the card.

The plumbing sits in your payment gateway. Razorpay, PayU, Paytm and Juspay each expose subvention settings by bank, by tenure and by minimum cart value. You choose the combinations. The gateway nets the subvention out of your settlement before the money reaches your bank account. There is no invoice you get to review at month end. It is already deducted.

What it costs you per order

Model the cost as a percentage of order value, not as an interest rate, because that is how it lands on your profit and loss.

• Three month tenure: roughly 2.5 to 3.5 percent of cart value
• Six month tenure: roughly 5 to 7 percent
• Nine month tenure: roughly 8 to 9 percent
• Twelve month tenure: 10 percent and above

Two costs get missed. First, GST at 18 percent applies on the interest component, so a 700 rupee subvention actually costs you 826 rupees. Second, the card leg still carries MDR, roughly 1.6 to 2 percent on credit cards. Stack them.

Take a 12,000 rupee cart on a six month no cost plan. Subvention near 720 rupees. GST on that near 130 rupees. MDR near 220 rupees. Total payment cost around 1,070 rupees, or 8.9 percent of the order, against effectively zero on UPI. If your contribution margin was 30 percent, you handed back close to a third of it on that one order.

Does the basket lift actually cover it

Sometimes. The test is not whether EMI orders carry a higher AOV. They always do, because customers who want EMI self select into larger carts. The correct test is a holdout. Turn EMI off for a randomised slice of traffic, or off entirely for two weeks, and compare total contribution rupees, not AOV and not conversion rate.

The arithmetic that has to work: if EMI costs 6 percent of order value on the orders that use it, and 20 percent of your orders use it, blended payment cost rises 1.2 points. At a 30 percent contribution margin you need roughly a 4 percent lift in contribution rupees across the whole site to break even. That is a real bar. Categories with a genuine affordability wall clear it, which means appliances, furniture, mattresses, fitness equipment and electronics above 8,000 rupees. A 1,400 rupee skincare cart does not.

The practical control is a floor. Offer no cost EMI only above a cart value where the subvention is affordable, and only on tenures you are willing to fund.

Card EMI, cardless EMI and BNPL are three different products

• Card EMI converts an existing credit card limit into a loan. Cheapest subvention, no fresh KYC, almost no added friction. It only reaches people who already hold a credit card, which is a minority of Indian shoppers.
• Cardless EMI is a fresh consumer loan from an NBFC such as Bajaj Finance or HDB, approved at checkout. It reaches the non card base. It costs one to two points more in subvention, inserts a KYC and approval step inside your funnel, and first time approval rates are lower than most funnels can absorb.
• BNPL is short tenure deferred payment, typically 15 to 30 days or a split into three. Merchant fee usually 2 to 4 percent. Its real use is as a prepaid substitute for cash on delivery on small baskets, not as an affordability tool on large ones.

What the RBI rules constrain

The Reserve Bank of India (Digital Lending) Directions, 2025, issued in May 2025, folded the 2022 digital lending guidelines and the 2023 default loss guarantee rules into a single framework. Four things matter at your checkout.

• Loan money must move directly between the borrower and the regulated lender. It cannot sit in a pool account controlled by the platform or by you.
• A Key Fact Statement showing the annual percentage rate has to be given before the loan is taken. Standalone zero percent copy does not survive that disclosure.
• Default loss guarantee cover is capped at 5 percent of the loan portfolio, which changed the economics of aggressive first time approvals.
• These are regulated loans reported to credit bureaus. A missed instalment on a 9,000 rupee cart damages a real credit score, and the complaint arrives at your support inbox.

Deferred payment you extend yourself sits outside the directions. The moment a bank or an NBFC funds it, you are inside a regulated arrangement. Name the lender in your checkout copy and keep the terms page current.

Returns get ugly when a plan is already live

Cancelling the order does not cancel the loan. The refund routes back to the lender, which then forecloses or reduces the principal. Expect 7 to 21 days longer than a card refund, and expect the customer to call you rather than the bank when an instalment is still debited in the interim.

Three traps in particular. Subvention you already paid is frequently not returned on cancellation, or only partly, so a returned EMI order costs more than a returned prepaid order. Partial returns from a multi item cart create a mismatch, because one loan sits against one order value and a partial refund becomes an awkward principal reduction that may or may not recut the schedule. And a customer who has already paid one instalment may be charged foreclosure by the lender, which they will treat as your problem.

Manage this with rules, not goodwill. Block no cost EMI on categories running above 15 percent returns. Disable it on sizes and shades with high exchange rates. Write a separate cancellation script that names the lender, the expected timeline and the foreclosure position, and put it in the confirmation email before anyone has to ask for it.