The Rise of BNPL
“Buy Now, Pay Later” (BNPL) services like Affirm, Klarna, and Afterpay are reshaping consumer finance. These installment loan options let shoppers split purchases into smaller payments, often interest-free if paid on time. Their adoption has surged in the United States: an estimated 86.5 million Americans used BNPL in 2024, and the number is projected to climb to 91.5 million in 2025. U.S. BNPL purchases hit $82.4 billion in 2024, nearly 10% higher than the year before, cementing BNPL as a mainstream credit option.
Why Consumers Prefer BNPL
The appeal is straightforward. Consumers, especially younger buyers or those with stretched credit, view BNPL as a cheaper, simpler alternative to high-interest credit cards. Unlike traditional credit, BNPL offers clear repayment schedules, upfront terms, and an easy checkout experience. For many shoppers with near-prime or subprime credit, it feels like a lifeline compared to traditional borrowing.
How BNPL Eats into Credit Card Revenue
For banks and card issuers, the growth of BNPL poses a direct threat. Credit cards thrive on interest charges, swipe fees, and late penalties, but BNPL shifts much of the cost to merchants. As more purchases move from plastic to installment plans, banks lose interest revenue and transaction volume. Retailers often benefit, with BNPL boosting order values at checkout, but the business model sidelines the traditional financial players who have long dominated consumer lending.
Hidden Risks in Credit Reporting
BNPL also creates blind spots for banks when assessing risk. Until recently, most BNPL loans weren’t reported to credit bureaus, meaning repayment behavior wasn’t factored into credit scores. As a result, lenders may underestimate a borrower’s debt load. The Consumer Financial Protection Bureau has flagged this issue, warning that incomplete visibility into BNPL usage undermines accurate credit decisioning. While new rules are pushing for greater reporting, banks remain cautious about the uncertainty.
Consumer Debt Concerns
BNPL is marketed as safe and interest-free, but the ease of use can mask risks. Studies show BNPL users are more likely to carry multiple loans at once, face financial constraints, and risk late payments. While default rates remain lower than traditional credit cards, the smaller loan sizes and autopay structures may conceal deeper financial stress. If economic conditions tighten, BNPL could face rising delinquency rates that challenge its sustainability.
Regulation and Industry Response
The regulatory landscape is shifting. FICO plans to release a new scoring model in 2025 that incorporates BNPL data, and regulators are pushing for consumer protections closer to those covering credit cards. At the same time, banks are beginning to adapt by launching their own installment payment products or partnering with fintech providers. These moves reflect a recognition that ignoring BNPL could mean ceding an entire generation of borrowers to newer players.
The Future of Credit
BNPL is not just a fad—it’s a structural shift in consumer finance. By offering transparent, flexible repayment options, BNPL has forced banks and credit card companies to rethink their models. For consumers, the trade-off is convenience versus the risk of hidden debt. For financial institutions, the challenge is clear: adapt to the BNPL era or risk losing relevance in a rapidly changing market.
