Don’t Worry, Be Happy: The Rise and Risk of Buy Now, Pay Later Services

Consumer sentiment, according to a recent University of Michigan survey, is down nearly 30% year over year.

And yet, another recent survey by Omnisend estimates that US consumers will spend $80 billion ($20 billion more than in 2024) on Black Friday and Cyber Monday. One might ask why?

Well, consumer sentiment among the wealthy is up from October, so they can at least be counted on to spend. Additionally, Omnisend’s view is that shoppers intend to spend more on Black Friday and Cyber Monday due to the deals offered on those days. That’s nice; planning ahead to save some money is a good thing. But if that were the whole story, we’d have nothing to bitch about…

Here’s the rest of the story (that’s an homage, not a ripoff, by the way): 14% and 21% of shoppers plan to ‘buy now, pay later’ (“BNPL”) on Black Friday and Cyber Monday respectively, according to Omnisend.

Adobe Analytics estimates that BNPL will drive more than $20.2 billion in online sales alone during the holiday season as a whole.

How are you doing financially, really?

The Federal Reserve Bank of New York’s Center for Microeconomic Data gave us some answers in its Quarterly Report on Household Debt and Credit, issued on November 5^th.

The report found that credit card balances rose by $24 billion during the third quarter, now totaling $1.23 trillion. That’s a 60% increase in four years, putting it at the highest level since 1999, when the New York Fed began tracking it.

Total household debt also increased by $197 billion in Q3 2025, to $18.59 trillion.

Simply put, that’s a lot of debt ‘on the books.’ If only there were another way…

As John Oliver puts it, “WTF are BNPL services?”

(For the John Oliver reference, by the way, go to the one-minute and 11-second mark of this video.)

It’s easiest to understand what BNPL services are by starting with what they are not: they are not credit cards.

At first glance, BNPL services and credit cards appear to serve the same purpose: letting consumers walk away with purchases they haven’t fully paid for. But while both tools offer short-term liquidity, they operate under different rules and appeal to different financial behaviors.

Credit cards are a form of revolving credit. You make a purchase, get a monthly statement, and ideally pay it off within the grace period. Fail to do so, and you start accruing interest. For those who carry a balance, interest charges can quickly turn a modest purchase into a more expensive one.

In contrast, BNPL offers fixed installment payments, often four equal amounts over six weeks, with no interest if paid on time, as explained by the Office of the Comptroller of the Currency.¹

If you’ve ever shopped online, you’ll have seen BNPL offered at checkout. The appeal here is pretty self-explanatory. Rather than paying the total amount, you can pay off the total in instalments, typically without interest. There’s no APR to decode and no temptation to revolve a balance.

BNPL programs don’t charge interest, but they do impose late fees. And when multiple purchases stack up, it’s easy to lose track of payment schedules.

But late fees aren’t actually the primary way BNLP lenders make money.

The lender pays the merchant for the good or service, and takes on the responsibility of extending credit and collecting payments from the customer. To compensate for the BNPL lender taking on borrower default risk, the merchant charges them a discounted price for the transaction. The lender thus makes most of its revenue from the full amount collected from customers minus the discounted amount paid to merchants.

BNPL emerged as an easier alternative to borrowing money. Unlike the rigorous process of applying for a credit card, getting approved for a BNPL loan simply requires a phone number, proof that you are 18 or over, and a payment method.

Fun, bubbly ads on social media have also helped to reframe it as a “smarter” form of credit, encouraging shoppers (half of whom are under the age of 33) who would otherwise shy away from credit cards, which they still associate with debt.

But BNLPs are far less regulated than credit cards.

BNPLs brand themselves as “pay-in-four” programs with no interest, and this historically allowed many of them to sit outside the credit card rules under Regulation Z, which apply to “open-end credit”. In 2024, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule clarifying that some BNPL lending arrangements were effectively credit cards, which should comply with parts of Regulation Z. Even so, BNPLs are still exempt from the tougher rules that apply to “open-end credit” around penalty fee limitations and ability-to-repay requirements.

It was a small step in the right direction, but the CFPB, which has since been stripped of its headcount and budget, recently rolled back on enforcing this interpretive rule.

Making Debt Look ‘Cute’

BNPL spending has exploded since the Pandemic. In fact, BNPL transaction volume has multiplied 20 times since 2019.

Its widespread availability and ease of use have encouraged shoppers to purchase costly items that they couldn’t otherwise afford, driving up online purchases by an average of 10%. The use of different BNPL options also makes it hard to budget spending, and one can quickly rack up hefty sums of debt before realizing.

The problem here is that BNPL loans aren’t widely viewed as debt. Celebrities like Rebel Wilson innocuously joke that BNPL is like “if you can eat the whole tub of ice cream but spread the calories over six weeks.” But it’s this kind of irreverent branding that has allowed BNLP to turn into a “gateway drug to consumer debt.”

Some have argued that BNPL’s ease of use is glamorizing consumerism and making the concept of owing money seem farcical. The result is that living beyond one’s means is becoming more normalized, with social media helping that happen with efficiency.

It’s a concerning trend among female shoppers in particular, who are seeing influencers paid by BNPL companies to show off their purchases in fun “get ready with me” videos.

But debt is still debt, even if you dress it up as something cute.

The latest trends are even more concerning.

BNPL first gained popularity in e-commerce as a convenient way to splurge on a new jacket or even concert tickets (and on that note, nearly two-thirds of Coachella attendees used BNPL to afford their ticket).

But now, shoppers are using BNPL for more than just discretionary purchases.

A Lending Tree survey found that 25% of respondents who used BNPL services had used them to purchase groceries in 2024. This suggests that many consumers are struggling in an uncertain economy that’s grappling with high inflation and interest rates.

We’ve also seen food delivery apps like DoorDash and Klarna partnering with BNPL to help finance your next takeout meal. That is scary and reminds us of the old saying: Friends don’t let friends use BNPL like credit cards.

The growing pervasiveness of BNPL is a slippery slope that encourages consumers to accumulate debt — many of whom are already in debt.

In fact, 41% of BNPL users made a late payment in the past year, up from 34% in 2023. Back in January, the CFPB found that nearly two-thirds of BNPL loans were going to shoppers with subprime or deep subprime credit scores.

What this shows is that it’s a vulnerable group of consumers who are using BNPL, and they are being exploited by an industry that’s making it easier to borrow money on an increasing number of goods and services.

It makes one want to ask — will the next crash come from subprime burrito loans?

So, What’s Next for Buy Now, Pay Later?

In June, FICO announced that it was adding BNPL loans to credit score reports, addressing what was previously a blind spot for credit card lenders deciding how much credit to offer.

Such a move isn’t likely to make a huge difference for most shoppers. According to a yearlong study FICO ran with Affirm, 85% of BNPL users saw a pretty small change to their credit score, within 10 points up or down.

It’s a shift in the right direction, but what’s also worth noting is that the line between traditional and new forms of credit is starting to blur. We’re seeing BNLP companies now issuing physical cards, while traditional credit card companies are introducing BNPL features, like Plan it by American Express.

All of this makes it all the more important to rethink the way we treat short-term credit.

Endnotes:

1. The OCC oversees national banks and federal savings associations, making sure they run in a safe and sound way, offer fair access to banking services, treat customers fairly, and obey the laws and regulations. It serves as a regulator, supervisor, licensing authority, and consumer-protection watchdog all in one.

©2025. DailyDAC^TM, LLC d/b/a/ Financial Poise^TM. This article is subject to the disclaimers found here.

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