A product long used in developing countries, Buy Now, Pay Later (BNPL) gained popularity during the pandemic as a way to support cash-strapped consumers now in wealthy economies, particularly in the United States. However, even after the crisis, third-party installment financing has continued to grow, highlighting an increasing reliance among lower-income groups on credit-based transactions for everyday purchases.
Among Americans, the share of online purchases made using BNPL surged by 14% in 2022 compared to the previous year, according to Adobe Analytics data. The same study showed continued growth in 2024, especially during the holiday season, when consumers spent $18.2 billion through BNPL. On Cyber Monday alone, BNPL transactions reached a record $991.2 million in a single day in the U.S.
BNPL services allow consumers to split the cost of a purchase into multiple installments, often with no initial interest charges. Unlike traditional credit cards, BNPL providers typically conduct only soft credit checks, making it easier for users to access financing without immediate scrutiny. Short-term BNPL plans are usually interest-free, while longer-term options may include financing fees. However, late payments can trigger high fees, leading to hidden costs that many consumers may not fully understand.
While BNPL can help avoid revolving credit debt, the accumulation of multiple commitments and a lack of consumer awareness about how these products work can encourage riskier spending behaviors. The issue worsens when financial institutions fail to make penalty fees and interest rates explicitly clear in case of late payments.
Risks and regulation
Economists have warned about the need for stricter regulatory oversight. BNPL providers often operate in a regulatory gray area, with varying oversight depending on state and federal interpretations. Unlike credit cards, BNPL loans with four or fewer installments are not always subject to the same rules under the Truth in Lending Act (TILA), a recent Deloitte report cautioned.
BNPL users may not see positive credit-building benefits, but missed payments can be reported and negatively impact credit scores. The ease and low friction of BNPL and similar credit options can also lead to overspending and potential defaults, financial experts warn.
Beyond individual financial risks, the rapid expansion of BNPL could have broader economic implications. As more consumers rely on short-term credit for essential purchases, household debt levels may increase, potentially weakening overall financial stability. Regulators in several countries are debating whether BNPL should be classified as a form of credit, which would subject providers to stricter lending rules and consumer protection measures.
Despite concerns, major BNPL players continue to expand their market reach, partnering with major retailers and e-commerce platforms. Companies like Klarna, Affirm, and Afterpay have reported record transaction volumes, signaling that BNPL is becoming an entrenched part of consumer spending habits. Whether regulatory frameworks will evolve to keep pace with this growth remains an open question.
