BNPL Market Rises on Global Expansion, Regulatory Pressure Mounts

Max Levchin, co-founder of Affirm, recently explained the mechanics of the Buy Now, Pay Later (BNPL) model, highlighting its appeal and risks. BNPL allows consumers to purchase goods without upfront payment, spreading the cost over time in manageable installments. The service has gained traction globally, particularly in markets like Brazil and Canada, where it is reshaping consumer behavior and financial access.

In Brazil, the BNPL market is projected to grow significantly, reaching USD 7.43 billion by 2030, driven by integration with instant payment systems like Pix and expansion into physical retail. Meanwhile, U.S. BNPL spending is expected to hit a record $20 billion during the 2025 holiday season, despite concerns about financial overextension among consumers.

Analysts and regulators are increasingly scrutinizing BNPL services, with state attorneys general in the U.S. demanding transparency on loan structures and repayment terms. This comes as companies like Affirm face growing scrutiny and regulatory uncertainty, particularly amid changes in federal oversight and economic pressures.

The Mechanics and Expansion of BNPL

BNPL services operate by allowing consumers to defer payments for purchases, often with no interest if repaid on time. However, late fees and high APRs can turn what seems like a flexible financial tool into a costly debt trap. In Brazil, fintechs like Cleo and ADDI are leveraging Pix to streamline installment payments, reducing costs for merchants and improving accessibility for underbanked consumers. This integration is a key driver of adoption, particularly in e-commerce and physical retail environments.

The Canadian BNPL market is also expanding, with companies like Afterpay and PayBright competing to offer tailored solutions for local consumers. Retailers are using BNPL to reduce cart abandonment and attract budget-conscious shoppers. Meanwhile, new entrants like KOHO are introducing BNPL options for larger purchases, signaling a shift toward more diverse and flexible financial products.

Regulatory and Consumer Risks

As BNPL adoption grows, so does regulatory scrutiny. In the U.S., state attorneys general have sent letters to major BNPL providers, including Klarna, Affirm, and Afterpay, seeking details on loan structures and consumer protection measures. These efforts reflect concerns that aggressive marketing may lure consumers into high-cost arrangements they cannot repay. Similar regulatory actions are emerging in Canada, where the Financial Consumer Agency is intensifying oversight to mitigate risks like over-indebtedness and poor financial literacy.

The risks are not limited to regulatory challenges. Consumers, particularly younger and financially vulnerable borrowers are increasingly using BNPL for smaller, discretionary purchases, raising concerns about their ability to manage multiple installment loans. With U.S. credit-card debt hitting record highs, the combination of BNPL and traditional debt is creating a precarious financial landscape for many households.

Market Projections and Investor Sentiment

Despite the risks, BNPL remains a high-growth sector for investors. Affirm, a leading U.S. provider, has seen robust revenue growth, prompting Freedom Capital Markets to initiate a Buy rating with a $90 price target. The firm cited Affirm's expanding market share and international ambitions as key growth drivers. However, the stock currently trades above its Fair Value estimate, suggesting potential volatility in the short term.

Globally, BNPL is expected to reach $687 billion in transaction volume by 2028, up from $334 billion in 2024. This expansion is driven by economic uncertainty, e-commerce growth, and the need for flexible payment options. In Brazil, the market is forecast to grow at a 9.8% CAGR through 2030, supported by regulatory sandboxes and open banking initiatives. In Canada, the BNPL market is projected to reach $11.32 billion by 2030, with providers competing to secure partnerships with major retailers.

What This Means for Investors

For investors, the BNPL sector presents both opportunities and risks. The potential for high growth is evident, particularly in markets like Brazil and Canada, where financial inclusion and e-commerce trends are accelerating adoption. However, regulatory uncertainty and consumer risks could impact long-term sustainability. Companies that can navigate these challenges while maintaining profitability are likely to outperform.

Affirm and other leading BNPL firms are already demonstrating resilience, with Affirm reporting strong Q1 results and GAAP profitability over the past three quarters. As the sector matures, investors should monitor regulatory developments, consumer behavior shifts, and competitive dynamics in key markets. The balance between innovation and oversight will ultimately determine the sector's trajectory.