The Rising Risks of Buy Now, Pay Later (BNPL) and Its Impact on Consumer and Financial Markets

The Buy Now, Pay Later (BNPL) market is surging, with the global industry projected to grow from $19.22 billion in 2024 to $83.36 billion by 2034, driven by a 15.18% compound annual growth rate (CAGR) [1]. In the U.S., the market is even more explosive, expected to reach $367.85 billion by 2030 at a 16.65% CAGR [2]. This rapid expansion, however, masks a growing tension between consumer convenience and systemic financial risk, particularly for middle-class households already grappling with inflation, stagnant wages, and rising living costs.

The BNPL Paradox: Low Default Rates, High Systemic Risks

While BNPL platforms tout default rates as low as 2%—significantly below the 10% default rate for credit cards [3]—the true risk lies in the nature of the debt itself. Unlike credit cards, most BNPL loans are not reported to credit bureaus, creating a “phantom debt” problem [4]. This lack of transparency allows consumers to accumulate multiple overlapping loans without triggering traditional credit checks. For example, the average BNPL borrower holds $22,163 in unsecured debt, with BNPL accounting for 17% of that total [5].

The demographic profile of BNPL users further amplifies concerns. Fourteen percent of U.S. adults used BNPL in 2023, with the highest adoption among younger, lower-income individuals [6]. These users often face financial constraints, with 14% of BNPL borrowers in 2025 classified as “severely financially constrained” [7]. The Federal Reserve’s 2023 Survey of Household Economics and Decisionmaking (SHED) found that BNPL users are more likely to have subprime credit scores and less than $1,000 in emergency savings [8]. This combination of high usage among vulnerable populations and unreported debt creates a ticking time bomb for financial stability.

Regulatory Gaps and Credit Reporting Challenges

The absence of BNPL data in traditional credit scoring models has long been a blind spot for lenders and regulators. However, this is changing. FICO’s upcoming FICO 10T model, set to launch in fall 2025, will incorporate BNPL payment history into credit scores [9]. This shift could expose the fragility of BNPL’s current low-risk narrative. For instance, 96% of BNPL users who miss payments show signs of financial stress, such as late utility payments or maxed-out credit cards [10]. As these defaults become visible in credit reports, lenders may reassess the sector’s risk profile, potentially tightening credit access for millions.

Regulatory scrutiny is also intensifying. The Consumer Financial Protection Bureau (CFPB) reclassified BNPL lenders as credit card providers in 2024, subjecting them to the Truth in Lending Act [11]. While this aims to protect consumers, it has increased compliance costs for BNPL platforms, which may pass these expenses to users through higher fees or reduced flexibility. Meanwhile, the Department of Housing and Urban Development (HUD) has raised alarms about BNPL’s impact on housing stability, noting that frequent BNPL use could strain households’ ability to meet mortgage or rent obligations [12].

Investment Implications: Growth vs. Fragility

For investors, the BNPL sector presents a classic dilemma: high growth potential versus concentrated risk. The market’s expansion into non-traditional sectors like healthcare and travel [13] suggests long-term viability, but the underlying borrower base remains precarious. Morgan Stanley warns that a downturn—such as a recession or inflation spike—could trigger a wave of defaults, particularly among younger users who rely on BNPL for everyday purchases like groceries and clothing [14].

Klarna’s Q1 2025 credit losses, which rose sharply amid economic uncertainty, underscore this fragility [15]. Similarly, Numerator’s 2025 survey found that 51% of Americans believe BNPL encourages debt accumulation, with Gen Z expressing the highest concern at 57% [16]. These trends suggest that while BNPL is here to stay, its long-term sustainability will depend on how effectively platforms address risk management and regulatory demands.

Conclusion: A Double-Edged Sword

BNPL’s rise reflects a broader shift in consumer behavior toward flexibility and instant gratification. Yet, its expansion into the middle-class economy—where financial margins are thin—poses significant risks. For investors, the key is to balance optimism about the sector’s growth with caution about its systemic vulnerabilities. As the Kansas City Fed notes, “BNPL is not inherently a crisis, but it is a crisis waiting to happen” [17]. The coming years will test whether the industry can evolve from a convenience-driven tool to a responsibly managed financial product.

Source:
[1] Buy Now Pay Later Market Size | Industry Report, 2033 [https://www.grandviewresearch.com/industry-analysis/buy-now-pay-later-market-report]
[2] US Buy Now Pay Later Services Market Size & Share [https://www.mordorintelligence.com/industry-reports/us-buy-now-pay-later-services-market]
[3] CFPB Releases Report Highlighting Consumer Use of Buy Now, Pay Later Products [https://www.consumerfinancialserviceslawmonitor.com/2025/01/cfpb-releases-report-highlighting-consumer-use-of-buy-now-pay-later-products/]
[4] The Rising Risks of Buy Now, Pay Later (BNPL) in Consumer Credit [https://www.ainvest.com/news/rising-risks-buy-pay-bnpl-consumer-credit-2508/]
[5] Who Bears the Risk of 'Buy Now, Pay Later'? - BNPL [https://www.morganstanley.com/insights/articles/buy-now-pay-later-trends-2025]
[6] "The Only Way I Could Afford It": Who Uses BNPL and Why [https://www.federalreserve.gov/econres/notes/feds-notes/the-only-way-i-could-afford-it-who-uses-bnpl-and-why-20241220.html]
[7] Buy Now, Pay Later: Convenience and Constraints [https://www.kansascityfed.org/ten/buy-now-pay-later-convenience-and-constraints/]
[8] Financial Constraints Among Buy Now, Pay Later Users [https://www.kansascityfed.org/research/economic-review/financial-constraints-among-buy-now-pay-later-users/]
[9] Does Buy Now, Pay Later Affect Credit Scores? It Will Soon [https://www.empower.com/the-currency/money/does-buy-now-pay-later-affect-credit-scores-news]
[10] The Rising Risks of Buy Now, Pay Later (BNPL) in Consumer Credit [https://www.ainvest.com/news/rising-risks-buy-pay-bnpl-consumer-credit-2508/]
[11] CFPB Releases Report Highlighting Consumer Use of Buy Now, Pay Later Products [https://www.consumerfinancialserviceslawmonitor.com/2025/01/cfpb-releases-report-highlighting-consumer-use-of-buy-now-pay-later-products/]
[12] HUD Seeking Information About Impact Buy Now, Pay Later Has on Housing Expenses [https://www.consumerfinancemonitor.com/2025/07/07/hud-seeking-information-about-impact-buy-now-pay-later-has-on-housing-expenses/]
[13] Buy Now Pay Later (BNPL) Market Size & Share Report [https://www.fortunebusinessinsights.com/buy-now-pay-later-market-106408]
[14] Who Bears the Risk of 'Buy Now, Pay Later'? - BNPL [https://www.morganstanley.com/insights/articles/buy-now-pay-later-trends-2025]
[15] The Rising Risks of Buy Now, Pay Later (BNPL) in Consumer Credit [https://www.ainvest.com/news/rising-risks-buy-pay-bnpl-consumer-credit-2508/]
[16] Insights Into Buy Now, Pay Later: Growth & Trends 2025 [https://www.numerator.com/resources/blog/buy-now-pay-later-market-insights/]
[17] Buy Now, Pay Later: Market Impact and Policy [https://www.richmondfed.org/publications/research/economic_brief/2025/eb_25-03]