Rapid Growth of ‘Buy Now, Pay Later’ Raises Global Concerns
The rapid growth of ‘Buy Now, Pay Later’ (BNPL) services has raised global concerns, particularly as financial stress increases among consumers. Industry veteran Nigel Morris, a co-founder of Capital One, recently expressed his worries about the current economic climate at an event in Lisbon. Morris, who is now invested in companies like Klarna, noted surprising trends in BNPL usage.
Surge in BNPL Users
According to Empower, 91.5 million Americans utilized BNPL options in 2023. A survey by Lending Tree revealed that 25% of these users are financing essential purchases like groceries, a key indicator of financial distress. Originally marketed for non-essential items, BNPL has shifted toward fundamental goods.
Late Payments and Default Rates
Concerns deepen due to rising default rates. In 2025, 42% of BNPL users were reported to have made at least one late payment, an increase from prior years. This trend suggests borrowers are increasingly overwhelmed.
Lack of Transparency in Consumer Debt
Most BNPL loans do not appear on credit reports, creating what regulators identify as “phantom debt.” This lack of visibility means lenders are unaware of consumers potentially juggling multiple loans across various platforms. As Morris pointed out, the current credit system is effectively blind to these obligations.
Regulatory Challenges
Recent data from the Consumer Financial Protection Bureau (CFPB) raised eyebrows. In early 2023, 63% of BNPL borrowers had multiple loans active simultaneously, while 33% took loans from various providers. From 2021 to 2022, the percentage of borrowers financing purchases with BNPL loans increased from 17.6% to 20%.
Concerns About Financial Stability
Although the BNPL market is still developing, its rapid growth amidst a challenging economy has experts worried. With unemployment at 4.3%, up from lower rates in previous years, many consumers face compounding financial pressures. Additionally, the end of student loan payment moratoriums could exacerbate these issues.
Borrower Demographics
Notably, many BNPL users possess lower credit scores, with a significant portion falling into subprime categories. Approvals for these individuals often exceed 78%, indicating a concerning reliance on potentially unrecoverable debt.
Changing Financial Landscape
BNPL services are becoming increasingly ingrained in the financial landscape, attracting attention from technology giants and traditional banks alike. PayPal recently reported processing $33 billion in BNPL transactions, indicating a 20% annual growth. Major banks are now adopting BNPL strategies to retain competitive advantage.
The Shift to B2B BNPL
BNPL is also expanding into the business-to-business sector, where the trade credit market looms large with a value of $4.9 trillion. While this approach may boost spending among small businesses by an average of 40%, it also leads to higher overall debt burdens.
Possible Economic Risks
Experts caution that the rapid pace of BNPL expansion could mirror past financial crises. Similar strategies seen in subprime mortgage trading may resurface as BNPL debts are bundled and sold to investors, increasing systemic risk within the economy.
Nigel Morris emphasizes that while the situation isn’t currently a full-blown crisis, the convergence of phantom debt, rising unemployment, and potential regulatory hurdles creates a precarious environment. The future of BNPL could deeply impact not just individual borrowers, but the broader consumer finance landscape.
