The Perilous Position of Some Users of Buy Now, Pay Later


Buy now, pay later (BNPL) has drawn a flood of adherents in recent years, with the promise of goods that can go home now for dollars that won’t have to be remitted until sometime in the future.

Those easy transactions have drawn regulatory scrutiny, however. A report by the Consumer Financial Protection Bureau notes that BNPL users also avail themselves of other forms of credit at a higher rate than consumers who don’t use the products:

Retail credit cards: 62% of BNPL borrowers use them, compared with 44% of non-BNPL consumers.

Personal loans: 32% of BNPL users vs. 13% of non-BNPL consumers.

Student loans: 33% of BNPL borrowers vs. 17% of others.

The CFPB report also looked at credit scores. BNPL borrowers, already likely to be loaded down by more debt than other consumers, on average have a credit score in subprime territory (580-669) vs. non-users, who tend toward near-prime scores (670-739).

How BNPL Works

BNPL is a twist on the old layaway system known to analog generations. The difference—and it’s a major one—is that layaway worked on a foundation of making payments until the product was fully paid for and could go home with the buyer. With BNPL, the item goes home the day it’s chosen, and the funds arrive later. That’s the hope on the part of merchants and lenders, anyway.

BNPL providers, largely fintechs, usually don’t impose interest rates, nor do they trigger credit inquiries or credit reports. This combination makes them especially attractive to consumers already loaded with debt or who don’t have access to more traditional forms of credit. Further, the setup doesn’t come with the usual revenue stream for lenders (that is, interest). Their money often comes from fees imposed on the merchants that offer goods and services on flexible payment terms, which in turn can drive up consumer costs.

Uncertainty Across the Board

Javelin Strategy & Research went deep on BNPL’s challenges in August 2022, a month before the CFPB report came out. In a report titled Buy Now, Pay Later’s Suddenly Uncertain Future, analysts Marco Salazar and Daniel Keyes looked at major shifts headed for the space, including regulatory scrutiny, the entrance of card networks into the industry, and a looming recession.

They wrote: “The CFPB has traditionally focused on FIs, but it does have the authority to supervise nonbanks, including fintechs operating in the BNPL space.” That scrutiny could come in the areas of credit scoring, debt accumulation, late-fee rules, and transparency of financial data, they suggested.

Who Uses BNPL?

The report by Salazar and Keyes also looked at the demographic drivers of the rapid growth in BNPL use. Overall, 20% of the U.S. population used BNPL products in 2022, a 33% rise from the 15% who used them the year before.

Generation Z and Millennials largely fueled that upward trend, with 31% of Gen Z and 36% of Millennials using the products, up 29% and 39% from the year before.

Usage was also up among Generation X and Baby Boomers, but far less dramatically so. Consumers from those generations, in general, are more apt to be able to buy the goods and services they want either upfront or through more traditional credit vehicles.

Those trends track with the picture of BNPL users as painted by the CFPB report: Consumers either without much of a credit profile or one laden with debt, who are likely to see such loans as a convenient avenue to the goods and services they want without the obstacles blocking them from other means of acquisition.


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