There’s a quote out there by renowned author Bob Burg that says “Success is one thing you can’t pay for. You buy it on the installment plan and make payments every day.” Unfortunately, he wasn’t aware of the dangers of the “Buy Now, Pay Later” (BNPL) services being offered by BNPL providers when devising this quote. The whole concept of “Buy Now, Pay Later” has slowly turned into massive money makers for companies that participate in it. Purchase totals in the U.S. for BNPL companies came in at $70 billion for 2025. It’s growing rapidly with over 90 million American customers currently using it. The major players that’s dominating the market are PayPal, Klarna, Affirm, and Afterpay.
The original goal for these companies was for the good of the consumer. Their plan is to allow the consumer to split purchases into smaller, often interest-free, installments. The checkout option for the BNPL providers during purchases and a quick soft credit check with instant approval has made it a simple process. This service is widely available online and in-store. The Covid-19 pandemic accelerated the usage as e-commerce grew. The main source of revenue for these providers is by charging a fee to the merchant, which is typically 2% to 8% of the purchase value. Merchants are fully on board because of increase in sales and average order values.
What we are finding now is disturbing and leaving long-term financial impacts on some BNPL consumers. The Buy now, Pay Later concept appeals mostly to the financially strapped customers making them ideal customers for retailers to cultivate. With the ease of obtaining loans without a regular credit check can lead to overextension. This leads to overspending, especially among the younger generation with fragile financial resources. The younger consumers and professionals are using these services to finance their lifestyles (from food to clothing). The accumulation of small payments over time results in overextension and significant debt. Even high-income earners can run into this problem due to the lax approval process. There have been numerous case studies recently that show individuals who have used multiple BNPL services frequently and have led to extreme compounding debt in the $30,000 -$50,000 range.
I mentioned one of the main revenue streams of BNPL providers comes merchants. The other source of revenue comes from late fees and high-interest costs to the user. Multiple missed payments could mean multiple fees. You may even be charged interest on a late fee of up to 36%. Most consumers are set up with an auto-pay method by a credit card or your bank account. If you have insufficient funds, you’ll be charged a daily late fee until you have enough money to make a scheduled payment.
Missed payments can now be reported to credit bureaus, which can lower your credit scores. In the past, BNPL was considered a “phantom debt”. Meaning it was unreported to the credit bureaus or governmental agencies. Data is now submitted to Equifax, Experian, and TransUnion by the providers that can be included in consumer credit scores. The Trump administration along with the Consumer Financial Protection Bureau are seeking changes in priority and enforcement actions. They plan on understanding the growing risks and economic impact by what many describe as nontransparent BNPL products.
It should be mentioned that “Buy Now, Pay Later” providers are not breaking any laws. Their intent is to offer consumers instant approval and zero interest if payments are made on time. But their enticement, along with the retailers, has increased the growth of consumer debt. Retail analyst Warren Shoulberg has warned: “It’s a huge trap for consumers; many of whom may not know how deeply they are getting into debt. That’s a huge exposure for retailers and other sellers who may never see their money again, given the shaky credit worthiness of many of these shoppers. Tempting consumers into financial trouble isn’t a sustainable business model – it’s a ticking time bomb.”