Consumers love buy now, pay later loans. Here’s why banks and credit card companies are wary of them

Buy Now, Pay Later (BNPL) plans are rapidly gaining market share, with an estimated 86.5 million U.S. users in 2024, offering an interest-free installment alternative that directly challenges traditional credit card usage. This widespread adoption is diverting transaction volume and reducing card utilization, impacting major revenue drivers for credit card issuers. Critically, the opaque nature of BNPL activity creates a significant 'black hole' in consumer credit profiles, complicating credit risk assessments for banks and traditional financial institutions.

Analysis

The Buy Now, Pay Later (BNPL) sector is demonstrating significant market penetration, posing a direct competitive threat to the traditional credit card industry. User adoption is expanding rapidly, with projections indicating an increase from 86.5 million U.S. users in 2024 to 91.5 million in 2025. This shift in consumer preference is siphoning off transaction volume from credit cards, directly eroding what LexisNexis Risk Solutions identifies as "major revenue drivers" for incumbent financial institutions. While this trend is favorable for BNPL providers like Affirm (AFRM), it introduces a critical systemic risk. The lack of BNPL loan reporting has created a "giant black hole" in consumer credit profiles, complicating credit risk assessment for traditional lenders and potentially obscuring the true leverage of a growing portion of the population. This opacity presents a challenge for banks and credit card companies who are wary of the unquantified risk associated with consumers utilizing these unregulated credit alternatives.

Key Decisions for Investors

• Given the strong secular growth and positive sentiment for disruptors, investors may consider the long-term potential of pure-play BNPL firms like Affirm (AFRM) that are capturing market share from traditional credit.
• Holders of stock in credit card issuers and major banks should closely monitor card utilization metrics and loan-loss provisions, as the rise of BNPL directly threatens transaction-based revenue and obscures true consumer credit risk.
• It is critical to watch for any regulatory developments or new credit reporting standards aimed at integrating BNPL data, as the closing of this 'black hole' in consumer profiles will be a key catalyst for reassessing risk across the consumer finance landscape.