Growing Buy Now, Pay Later Use Signals Rising Consumer Strain

Buy now, pay later (BNPL) services have become a lifeline for millions of Americans, increasingly used for everyday necessities like groceries. Once pitched as a way to finance discretionary spending, BNPL is evolving into a form of alternative credit with rapidly expanding risks.

At the Web Summit in Lisbon this week, Nigel Morris, co-founder of Capital One and an early investor in Klarna and Aplazo, said the trend raises red flags. “To see that people are using [BNPL services] to buy something as basic and fundamental as groceries,” Morris said, “I think is a pretty clear indication that a lot of people are struggling.”

According to Empower, a financial services firm, 91.5 million Americans have used BNPL platforms. Lending Tree data from late 2024 shows 25% of these users have leveraged BNPL loans to pay for groceries. Delinquency is growing: 42% of users made at least one late payment in 2025, up from 39% in 2024 and 34% in 2023.

Regulators and lenders worry that this debt is largely unmonitored. Because most BNPL providers do not report data to credit bureaus, borrowers can take out multiple loans across platforms without any visibility to other lenders. The Consumer Financial Protection Bureau (CFPB) calls this “phantom debt.”

In a January report, the CFPB found that 63% of BNPL users had originated multiple simultaneous loans in a given year, and a third borrowed from several BNPL firms at once. In 2022, 20% of users took out more than one loan per month on average. Many borrowers also had low credit scores; BNPL companies approved 78% of subprime or deep-subprime applications, according to the same report.

The total market remains smaller than other forms of consumer lending, but its opacity and borrower profile raise concerns. Nearly two-thirds of borrowers had subprime credit in 2022. From 2021 to 2022, average loan originations per customer increased from 8.5 to 9.5.

Data gathering and oversight remain inconsistent. The Biden administration previously attempted to apply the Truth in Lending Act to BNPL, aligning it with credit card protections. Those rules were reversed under the Trump administration. Earlier this year, CFPB acting director Russell T. Vought halted enforcement and rescinded multiple policy guidelines, arguing they placed burdens on BNPL companies with minimal benefit to consumers.

Shortly after the rollback, the CFPB released a report suggesting most first-time BNPL borrowers repay their loans, even among subprime segments. But critics point out the disconnect: the CFPB focused on single-use borrowers, while rising default rates come from prolonged, repeated use. Without updated long-term data, the full picture remains unclear.

States are beginning to act. New York in May introduced licensing for BNPL providers. But patchwork regulations could allow lending firms to route around stricter jurisdictions.

Morris noted these systemic risks could grow given macroeconomic stressors, including the recent student loan repayment restart. A September Congressional Research Service analysis showed that 5.3 million borrowers are in default and another 4.3 million are in late-stage delinquency. Unemployment also hit 4.3%, its highest in nearly four years.

He warned that cascading debt problems could unfold even before BNPL delinquencies spike. Many consumers prioritize paying off their BNPL loans over traditional credit cards or car notes, which further clouds lending portfolios for banks and fintechs that rely on bureau-reported data.

Morris raised deeper ethical concerns around the sector’s direction. He recalled his “mom test” from his Capital One days: would you recommend this product to your mother? If not, it shouldn’t be offered. While not directly condemning the companies he’s backed, Morris emphasized the need for a moral compass in consumer finance.

The credit invisibility baked into BNPL’s business model is part of the problem. If providers do not report on-time payments to bureaus, consumers can’t build credit to qualify for cheaper loans. That may be intentional. “Some of these buy-now-pay-later companies don’t want that to happen,” he said. “They don’t want the consumer to graduate.”

Meanwhile, BNPL is embedding itself further into the financial ecosystem. Klarna operates as a licensed bank in Europe. Affirm has nearly 2 million debit cardholders who can finance in retail stores. Apple Pay and Google Pay both include BNPL features. PayPal processed $33 billion in BNPL payments in 2024, a 20% year-over-year increase.

Morris noted that software companies are increasingly relying on embedded finance to drive margins. “It starts off as a nice little add-on,” he observed, “but when the powers of the marketplace drive down the returns in the core business, it’s often these financing businesses that have the greatest longevity and market power.”

A potentially more concerning development is the extension of BNPL into business-to-business credit. Trade credit markets total $4.9 trillion in the United States — four times the size of the credit card industry. When small companies gain access to BNPL-style financing, spending jumps by 40%, according to Hokodo, a B2B BNPL provider.

Investors are packaging and selling BNPL debt at scale. Elliott Advisors bought Klarna’s $39 billion British loan portfolio in 2024. KKR is purchasing up to $44 billion in BNPL debt from PayPal. Affirm has issued about $12 billion in asset-backed securities. Much of this debt goes unreported to credit bureaus, raising transparency issues for secondary markets.

While headlines have focused on artificial intelligence as the dominant financial bubble, Morris sees BNPL as an under-tracked risk that could create broad economic stress. It affects lower-income Americans, often outside the traditional credit system. As Morris put it, “Delinquency is not rising yet. Charge-offs are not rising yet. But there are clearly storm clouds on the horizon.”

The question now is whether regulators will act before the invisible debt turns into visible damage.