'Buy Now, Pay Later' is expanding fast, and that should worry everyone
5 days ago
- #BNPL
- #Regulation
- #Financial Stress
- Nigel Morris, co-founder of Capital One, expresses concern over the increasing use of Buy Now, Pay Later (BNPL) services for essential purchases like groceries, indicating financial stress among consumers.
- BNPL usage in the U.S. has surged to 91.5 million users, with 25% using these services for groceries, highlighting a shift from discretionary to essential spending.
- Default rates on BNPL loans are rising, with 42% of users making at least one late payment in 2025, up from 39% in 2024 and 34% in 2023.
- BNPL loans create 'phantom debt' as they are not reported to credit bureaus, making it difficult for lenders to assess borrowers' total debt exposure.
- Regulatory changes under the Biden and Trump administrations have created uncertainty, with recent rollbacks reducing oversight on BNPL services.
- BNPL is expanding into business-to-business (B2B) lending, with small businesses increasing spending by 40% when using BNPL, raising concerns about escalating debt levels.
- The packaging and selling of BNPL debt to investors, similar to subprime mortgage practices, poses systemic risks due to lack of transparency and regulation.
- Nigel Morris warns of 'storm clouds on the horizon' due to rising unemployment, student loan repayments resuming, and regulatory gaps, though he stops short of predicting a crisis.
- The BNPL market's growth and integration into mainstream financial systems, including partnerships with major banks and tech companies, make it a significant but underregulated part of the economy.
- The article contrasts the highly visible AI investment bubble with the less scrutinized but potentially risky BNPL bubble, emphasizing the need for regulatory attention to prevent widespread financial pain.