‘Buy Now, Pay Later’ Is Starting to Look a Lot Like Credit Cards | WSJ The Economics Of

Industry Overview & Growth - The Buy Now, Pay Later (BNPL) industry has experienced rapid growth as an alternative to credit cards [1][9] - BNPL transaction volume has multiplied 20 times since 2019 [9] - Physical cards for brick-and-mortar stores are a significant growth opportunity for BNPL lenders [8] Business Models & Revenue - Top BNPL providers offer pay-in-four, zero-interest installment loans [3] - BNPL providers charge merchants a fee, sometimes as high as 5% of the transaction value [4][5] - Some lenders, like Affirm, offer longer-term loans with interest [5] - Afterpay has a pay-monthly option for larger transactions with simple interest [6][7] Consumer Behavior & Risk - A LendingTree survey found that 25% of BNPL customers have used it for groceries, up from 14% in 2024 [12] - A CFPB study indicated that over two-thirds of BNPL loans went to borrowers with lower credit scores [14] - LendingTree found that 41% of BNPL users paid late in the past year, up from 34% the year before [16] Competition & Partnerships - Growing competition exists for both customers and merchants in the BNPL space [10] - Klarna announced an exclusive deal with Walmart to provide loans through OnePay [10] - Direct relationships with merchants are crucial for BNPL providers [11] Regulation & Credit Reporting - The CFPB issued an interpretive rule subjecting BNPL providers to credit card regulations, but enforcement is uncertain [19] - FICO announced it would add BNPL loans to credit reports [20] - Klarna and Afterpay are withholding customer data until they are assured customers won't be unfairly penalized [21]