As millions turn to BNPL for essentials like groceries, experts warn of rising defaults, phantom debt, and a growing fintech bubble that could echo the 2008 crisis.
A Hidden Warning in the BNPL Boom
Buy now, pay later (BNPL) services were once pitched as a smarter alternative to credit cards—split your payments into manageable chunks, often with no interest. But today, the BNPL landscape is shifting into troubling territory.
Nigel Morris, co-founder of Capital One and an early BNPL investor, is raising the alarm. Speaking at Web Summit, he noted a concerning trend: people are now using BNPL to buy groceries, not just luxury goods. That, he says, signals deep financial stress among everyday Americans.
The Numbers Are Surging—and So Are Late Payments
BNPL has rapidly gone mainstream:
- 91.5 million U.S. users are now using BNPL, per Empower.
- 25% of users are financing groceries.
- 42% have missed at least one payment in 2025—up from 34% in 2023.
What started as a tool for discretionary spending is now being used for basic necessities. And as usage rises, delinquencies are increasing, particularly among subprime borrowers.
Phantom Debt: The System Can’t See What’s Coming
One of BNPL’s biggest issues is its lack of transparency:
- Most BNPL loans are not reported to credit bureaus, meaning lenders and regulators have no visibility into a consumer’s full debt load.
- Borrowers can take out multiple BNPL loans simultaneously, creating what experts call “phantom debt.”
Without a centralized reporting system, it’s impossible to know who is overextended—until defaults happen.
The Data Gap Is Dangerous
According to the Consumer Financial Protection Bureau (CFPB), in 2022:
- 63% of BNPL users had multiple concurrent loans.
- Nearly 20% originated more than one BNPL loan per month.
- Two-thirds of borrowers had subprime credit scores.
Yet a recent CFPB report—focused only on first-time borrowers—offered a rosier picture, claiming 98% repayment rates. The discrepancy between this and broader default trends shows the limitations of current data collection.
Deregulation and Lobbying Complicate the Picture
BNPL regulation remains a patchwork:
- Under Biden, the CFPB sought to classify BNPL as credit, with consumer protections.
- The Trump-era reversal killed those efforts. In 2025, the CFPB rescinded 67 policies, including BNPL oversight.
- Now, states like New York are stepping in, but fragmented regulation creates loopholes companies can exploit.
This deregulated environment benefits BNPL providers, but it leaves consumers and the financial system exposed.
It’s Not Just Consumers Anymore: BNPL Hits Businesses
BNPL is expanding beyond retail:
- Business-to-business (B2B) BNPL is targeting the $4.9 trillion trade credit market.
- When small businesses gain BNPL access, their spending increases 40% on average—but so does their debt.
Lenders like Klarna and Affirm are also packaging BNPL debt into asset-backed securities (ABS), a tactic eerily reminiscent of the pre-2008 subprime mortgage crisis.
Embedded Finance: The Next Frontier—or Red Flag?
BNPL is becoming invisible financial infrastructure:
- Klarna and Affirm are now integrated with Apple Pay and Google Pay.
- PayPal processed $33 billion in BNPL transactions in 2024, growing 20% annually.
- BNPL is now built into payment processors like Stripe, Adyen, and JPMorgan Payments.
This embedding makes BNPL frictionless and ubiquitous, increasing its reach—and its risk.
The Ethics Dilemma: Are We Helping or Harming?
Morris offered a litmus test from his Capital One days: “The mom test.”
Would you recommend this financial product to your own mother? If not, don’t offer it.
BNPL companies argue they serve the underbanked, but by not reporting to credit bureaus, they also trap borrowers in subprime status—a deliberate business model that discourages credit advancement.
A Fintech Bubble in the Making?
While AI dominates the headlines, BNPL may be the bigger hidden risk. It’s:
- Lightly regulated
- Heavily used by vulnerable populations
- Tightly embedded in global commerce
- Increasingly securitized
And all of this is happening with minimal oversight.
Not a Crisis—Yet
Morris doesn’t claim a collapse is imminent. Defaults aren’t rising across the board—yet. But storm clouds are gathering:
- Unemployment has hit 4.3%, a four-year high.
- Student loan payments have resumed, affecting millions.
- Small businesses are pulling back amid economic uncertainty.
The danger isn’t just BNPL defaults—it’s the ripple effect across all other debt. As borrowers prioritize BNPL repayments, credit cards, auto loans, and student loans may go delinquent first.
