The Business of Making People Spend Money: Retail Finance

SYNOPSIS

Credit options like BNPL, consumer durable loans, and zero-interest EMIs have transformed the checkout experience,reducing purchase friction and boosting retailer conversion rates. However, as household debt climbs and non-housing retail loans take up a growing share of consumer borrowing in India, the true cost of easy credit is coming into focus.Balancing sales growth with sustainable consumption requires transparent pricing, realistic affordability assessments, and responsible underwriting from lenders.

Breaking a ₹60,000 purchase into easy monthly installments makes it feel instantly affordable, but reducing checkout friction doesn't eliminate the long-term price tag.

Checkout is a critical moment for the customer. For instance, a television available on an installment plan at ₹60,000 appears to be cheaper.

For businesses, a win-win solution would be to offer credit options to consumers like credit cards, consumer durable loans, zero-interest instalments, BNPL and digital personal loans. Retailers can reduce checkout friction and increase conversion, while lenders can earn interest, merchant fees or a long-term relationship. Customers can also be able to have a smoother cash flow which can allow them to buy necessary things. But we need to think about whether credit use will really expand their purchasing power or just shift spending forward in time.

If you look at credit data in India, you can see how common it is in households. Household debt was at 45.5% of GDP as on end-October 2026 (RBI). 58.4% of household debt (September 2026) Loans to the non-housing retail sector, mainly consumer loans, account for. This is testimony to the growing importance of consumption-related lending in households. June 2026 RBI Report on Financial Stability.

Credit is supposed to be simple and convenient. Reduce friction and increase conversion with fast approvals, pre-approved credit limits, one click purchasing and low instalments. But sometimes cutting what customers pay each month can obscure the real cost of what they have to pay back over the long haul and the opportunity cost. Even though it is a no-cost EMI, there may be lost discounts, fees or terms.

Looking at data from borrowers in financial distress, 60% of borrowers who approached Expert Panel said their monthly EMIs were nearly equal to or higher than their family’s total monthly income. Another 40% said they were using new loans or credit cards to manage existing EMIs. These figures are based on borrower inquiries and counselling sessions, and should not be taken as representative of all borrowers. But they show how severe the repayment burden can become.

Lenders need to consider how much growth they are seeing against their credit losses, collection costs and customer lifetime value. If retailers are seeing increased conversions from using credit, it will only be sustainable if the customers can afford to pay back. By responsibly underwriting, providing clarity on the overall cost and ensuring they can afford, you can create a sustainable credit solution.

Retail finance can improve access and help drive consumption, but sustainable expansion is more than just ramping up credit-fuelled sales. As credit becomes embedded in the shopping experience, affordability needs to be at the heart of it. Providers should assess the customer’s ability to pay back, explain the costs clearly and ensure the customer can manage the repayments. The industry’s success will come from enabling spending that customers can sustain.

Shakti Agrawal