Buy Now, Pay Later: Redefining Consumer Credit

By Tracy Lai, Partner, Lystar Group Fintech’s reshaping of credit extends well beyond institutional and commercial applications. The rise of Buy Now, Pay Later (BNPL) platforms—led by innovators such as Affirm, Klarna, and Afterpay—marks a decisive shift from traditional banks to agile alternative providers. These platforms harness real-time data, embedded digital experiences, and advanced underwriting models to deliver scalable, consumer-focused lending solutions.

As a form of short-term private credit, BNPL relies on algorithmic underwriting and institutional funding. What began as point-of-sale financing has evolved into a broader suite of post-purchase and installment products now offered by banks and credit unions, allowing traditional lenders to reclaim and own the full purchase-to-payment journey.

For institutional investors, BNPL portfolios represent a new avenue for consumer credit exposure—offering transparent cash flows, defined risk-return profiles, and an opportunity to participate in one of fintech’s most transformative lending innovations.

Widespread usage

A 2025 study of BNPL users by the Consumer Financial Protection Bureau (CFPB) matched loan-level data from six major BNPL firms with de-identified credit records and found that 21 percent of consumers in 2022 had used at least one BNPL “pay-in-four” loan, 63% of those borrowers originated multiple simultaneous BNPL loans during the year, and 33% used multiple providers. 

These findings confirmed that BNPL usage is widespread, not only by unbanked and underbanked consumers, but credit-active consumers as well. In addition, “loan stacking,” which refers to the practice of holding overlapping BNPL accounts with different providers, is far more prevalent than researchers and analysts had presumed. 

“Many BNPL borrowers originate several loans simultaneously, a practice that is particularly pronounced during the holidays, when BNPL use tends to spike,” researchers wrote. “We find that approximately 63 percent of borrowers originated multiple simultaneous loans at any firm at some point during the year, in 2021 and 2022, with 32 percent taking out BNPL loans across different firms in 2021 and 33 percent taking out BNPL loans across multiple firms in 2022.”

Changes in Credit Reporting 

CFPB researchers acknowledged that BNPL loans remain unobserved in credit records, as lenders do not generally furnish loan originations and performance information to credit bureaus. However, in April 2025, BNPL provider Affirm began sharing lending data with the Experian credit bureau and several months later, Fair Isaac Corporation (FICO) disclosed near-term plans to incorporate BNPL data into its consumer credit reporting. 

Julie May, vice president and general manager of B2B Scores, FICO, explained that the new scoring models were designed to enable lenders to accurately evaluate creditworthiness of individuals with limited access to traditional forms of credit. 

"Buy Now, Pay Later loans are playing an increasingly important role in consumers’ financial lives," said Julie May, vice president and general manager of B2B Scores at FICO. "By expanding our FICO Score 10 Suite with new models designed to incorporate BNPL data, we’re enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products.” 

May additionally noted that FICO Score 10 BNPL and FICO Score 10 T BNPL will be offered to lenders along with existing versions of the FICO Score.

Navigating Credit Access

A May 2025 research article by the Federal Reserve Bank of Kansas City found that BNPL could potentially place a strain on users who fall behind on payments. Researchers cautioned that consumers can run afoul of BNPL repayment plans due to cash flow challenges. 

“Unlike credit card issuers, BNPL lenders are not required to consider a consumer’s ability to repay loans,” wrote Kansas City Fed researchers. “Most BNPL providers only run a soft credit check for interest-free installment loans. As a result, consumers may use multiple BNPL products, in addition to other credit products, and risk financial overextension.” 

Researchers went on to say that another potential risk for consumers is that the availability of BNPL credit during the checkout process could encourage impulse buying. Additional risks included identity fraud when individuals are not aware of BNPL transactions initiated under their names, or the replacement of layaway services with BNPL products that entice customers into using credit products that they cannot effectively manage. 

“Offering BNPL also comes with the risk that the interest-free BNPL payments will attract existing customers away from payment options that cost merchants less to accept,” researchers wrote, citing debit and prepaid cards as examples. They noted that the Consumer Financial Protection Bureau has encouraged BNPL providers in the United States to ensure that BNPL users are informed of associated risks. 

Conclusion

These recent studies demonstrate that BNPL is more than a frictionless, risk-free alternative to credit cards. Researchers have found a more nuanced reality in which rapid adoption coexists with adjacent risk and a clear mandate for more transparent reporting.