Why The Risks Of Buy Now, Pay Later May Outweigh The Rewards

A growing number of retailers are banking on the rapidly emerging Buy Now, Pay Later payment option to carry them through what is shaping up as a challenging holiday season. While the National Retail Federation projects holiday sales growth to be in a healthy 3.7% to 4.2% range, the general consensus among analysts is that higher prices, rather than increased demand, will drive most of the gains. That will make BNPL an attractive option for consumers to keep spending even with their budgets are stretched thin.

BNPL gives shoppers an instant-gratification thrill, while spreading the pain of payments over time. That encourages consumers to make purchases they otherwise might have passed on. PayPal, a leading BNPL service provider, reports offering BNPL leads to a 91% higher average order value for retailers. Paypal, along with Afterpay, Affirm, Klarna, Sezzle, Splitit and Zip, are the leading BNPL third-party service providers, and more credit card companies are offering various BNPL options as well.

Yet, retailers’ short-term gains may come at a long-term cost. BNPL appeals most to the least financially stable customers, making them less-than-ideal customers for retailers to cultivate. The ease with which these potentially strapped customers can obtain loans without regular credit checks can too easily lead to overextension.

Furthermore, the third-party BNPL providers tend to charge higher merchant fees than the credit card companies do, so retailers are effectively paying more to acquire customers with the poorest long-term prospects.

As industry analyst Warren Shoulberg so pointedly put it in a LinkedIn post: “The whole BNPL process has potential disaster written all over it. And that’s for the retailers accepting BNPL and the consumers using it. Chances are it’s not going to end well for anybody.”

Risk Is Growing

Unfortunately, no authoritative BNPL usage or loan value statistics are available—more about that in a moment—but whatever they are, BNPL usage and dollar value is growing.

Usage On The Rise

Based on consumer surveys, The Federal Reserve Bank in New York found 14% of adults were using them in 2022 and the Federal Reserve Bank in Philadelphia found some 20% of adults had a BNPL loan in 2023. Both banks reported BNPL usage was more prevalent among “financially vulnerable” consumers.

A Harris Poll conducted in 2025 on behalf of NerdWallet found 55% of consumers had used BNPL services in the past, with some 22% currently owing money to a BNPL provider and 19% carrying multiple BNPL loans over the past twelve months. And the latest PayPal 2025 survey reported that 50% of holiday shoppers plan to use BNPL to cover holiday expenses this year.

If consumers do as they say, that would represent an increase more than double previous reported usage and there’s no estimate of how many of those intended holiday BNPL consumers are already carrying other BNPL loans.

Dollar Value Explodes

In 2021, the Consumer Financial Protection Bureau found the number of BNPL loans grew from 16.8 million in 2019 to 180 million in 2021 among the top five BNPL lenders—Affirm, Afterpay, Klarna, PayPal, and Zip—and that the value of those loans rose from $2 billion to $24.2 billion in the same time period.

Based upon the CFPB’s methodology, the Federal Reserve Bank of Richmond estimates that the value of BNPL loans reached $36.3 billion in 2024 among the top five BNPL lenders. However, a report from ResearchandMarkets.com puts the market size much higher—$109 billion in 2024 with expectations it will reach $122.3 billion by the end of 2025.

Adobe figures the online value of BNPL loans to be used during the five-day holiday kick-off between Thanksgiving and Cyber Monday will top $20.2 billion—nearly 20% of the year’s total BNPL spend—including $1 billion spent on Cyber Monday alone.

Adobe doesn’t account for BNPL spending in-store. However, a growing number of retailers are turning on BNPL for in-store purchases, including Best Buy, Dick’s Sporting Goods, Foot Locker, Home Depot, Macy’s, Nordstrom, Target, Urban Outfitters, Ulta Beauty and Walmart.

Regulatory Oversight Lacking

Until recently, BNPL was considered “phantom debt,” unreported to credit bureaus or government agencies. That was recently changed with the three major U.S. credit bureaus—Equifax, Experian and TransUnion—now receiving data from the leading providers to include in consumer credit scores.

At the same time, minority members of the U.S. Senate Committee on Banking, Housing and Urban Affairs, led by Senator Elizabeth Warren, just sent a letter to the seven leading BNLP players—Affirm, Afterpay, Klarna, PayPal, Sezzle, Splitit and Zip—demanding detail data on their BNPL products, their users, and their role in the broader economy by December 9.

Alarmed by the rising use of BNPL and the CFPB’s change in priorities and enforcement actions under the Trump administration, the committee seeks to understand the growing risks and economic impact of what it describes as “opaque” BNPL products.

“Consumers are depending on BNPL to pay for essentials such as groceries, healthcare, and to make payments on other forms of consumer debt, further demonstrating how intertwined BNPL loans have become in consumers’ financial lives,” the senators wrote.

“This could suggest that consumers are turning to BNPL when their other sources of credit are less available—and may be taking on debt they cannot afford,” the senators continued, citing research that found a consumer with a BNPL loan had, on average, $871 more in credit card debt in the month of origination than a consumer of the same age and credit score category who did not originate a BNPL loan that month.

Problems Arise When Consumers Are Stretched Too Thin

The appeal of BNPL for both retailers and consumers is without question. “When shoppers know they can pay overtime, they’re more likely to complete their purchase,” said Michelle Gill, general manager of small business and financial services at Paypal, in a statement.

However, on the flip side of BNPL’s convenience is a dark cloud. It can easily led to consumers overspending, especially among younger consumers and those with fragile financial resources.

A Bankrate survey found that nearly half of BNPL users experienced one or more problems using it: chief among them were one-fourth who reported that BNPL made them overspend, followed by 16% who missed a payment, 15% who regretted their purchase, and 14% who had difficulty making a return and getting a refund.

However, other reliable sources put the non-payment rate much higher. The Motley Fool found that 24% had missed a payment, rising to 32% among Gen Z consumers, who also tend to favor BNPL options to credit cards, perhaps because they can’t qualify for credit cards. LendingTree found that 41% had made late BNPL payments, with Gen Z (57%) and Millennials (49%) the most financially stretched.

While the Federal Reserve has no authoritative BNPL default statistics—it reports late payments on BNPL loans at 24%—other sources estimate that BNPL defaults range from 2% to 6%.

Yet the findings are consistent across the Fed’s research: the most vulnerable consumers—those most likely to default—are also drawn to use BNPL.

“Adults who report lower overall financial well-being and those who appear liquidity or credit constrained were among the most likely to use BNPL,” the Federal Reserve Board reported, adding that, “Most of these consumers also indicated that they used BNPL because it was the only way they could afford to make the purchase.”

These are likely to be purchases that financially stretched consumers would not be allowed to make if regular credit checks were in place.

Somebody’s Got To Pay

BNPL is a bubble that is bound to burst. As defaults inevitably rise and consumer get overwhelmed with debt, the finger-pointing will begin. While the saying goes, “When you point one finger at someone else, four fingers point back at you,” financially challenged consumers are not likely to turn inward. Rather, their ire will be directed toward the retailers and BNPL service providers who encouraged them to spend beyond their means.

Federal Reserve Governor Michael Barr called BNPL a “debt trap,” stressing that delinquency rates have gone up to 25%. “It’s a growing area of concern and one we should all be paying attention to,” he said in remarks at a July Fed conference on financial inclusion.

In the wreckage of consumer debt that BNPL leaves behind, the retailers and companies that fueled their growth on the backs of shoppers with the enticing promises of “buy now, pay later” will be left holding the bag, as retail analyst Shoulberg 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.”

See Also:

ForbesHow BNPL And Cash-Back Apps Influence Holiday Spending BehaviorBy Shelley E. KohanForbesWhy Retailers Should Rethink BNPL This Holiday Shopping SeasonBy Brian Delp