Rise of 'Buy Now, Pay Later' Services Poses Risks and Opportunities

As BNPL services surge in popularity, concerns grow over consumer debt and lack of regulation.

Buy Now, Pay Later (BNPL) services, such as Affirm, Klarna, Afterpay, and PayPal, are becoming increasingly popular, with spending on these platforms surging more than 42% on Cyber Monday from the previous year.
BNPL services allow consumers to spread out the cost of a purchase without accruing interest, making them an attractive alternative to credit cards, especially during a period of high inflation and record-high credit card interest rates.
However, these services can also tempt people to overspend and take on more debt than they can handle. Late fees can stack up quickly when payments are due every two weeks, adding up to as much as 25% of the purchase price under some plans.
BNPL loans are not yet captured by credit scoring systems or reported to the major credit bureaus in many cases, which could make it easier for borrowers to get in over their heads and difficult for policymakers to measure or regulate the industry.
Major credit agencies are working with BNPL providers on standards that would reflect users’ behavior on credit scores, but it is unclear when these standards will be implemented.