Buy Now, Pay (Much) Later
By: Riya Gupta – Consumer and Retail
Contributing Editors: Nathan Li, Caden Warner
The buy now, pay later industry is on the cusp of its biggest era yet.
For the last several years, buy now, pay later has quietly reshaped how Americans spend. The U.S. BNPL market has grown at a 23.8% CAGR between 2022 and 2025, reaching $107 billion in transaction volume, and the momentum shows increased signs of growth. Forecasts project the market will nearly double to $258 billion by 2031. BNPL filled a gap that traditional lenders never could: instant, frictionless credit at the point of sale, with no interest and no credit score requirement. Now, a spolicy shift is about to supercharge that advantage.
In January 2026, President Trump proposed capping credit card interest rates at 10% for one year. The math for banks is brutal. Credit cards currently charge an average APR of nearly 24%, and as high as 36% for subprime borrowers. Roughly 60 to 70% of bank credit card revenue is generated from that subprime tier, customers who carry balances, miss payments, and pay a hefty price for both. A 10% ceiling eliminates most of that margin in a single stroke. Banks will not absorb the loss. They will tighten issuance, raise minimum credit score thresholds, and quietly close the door on the 164 million American adults, 76% of all card holders, currently carrying at least one card above the proposed cap. Those consumers will not stop spending. They will look for the next available option, and the next available option is already sitting at checkout.
That is the macro setup. The micro execution is already well underway. Affirm posted 46% year-over-year revenue growth in 2024, reaching $2.32 billion. Klarna, operating across 790,000 merchant websites globally, reported $2.81 billion in revenue, up 24%. More importantly, both companies have done something credit cards never managed: they embedded themselves inside the two highest-traffic retail ecosystems on Earth. Walmart selected Klarna as its primary BNPL provider. Affirm renewed its Amazon partnership through January 2031. These are not distribution wins, they are infrastructure. Affirm and Klarna do not need to acquire customers anymore. They simply need those customers to keep checking out.
The bear case centers on credit quality. Approximately 41% of BNPL users reported making a late payment in the past year. 61% of U.S. BNPL borrowers fall into subprime or deep subprime credit categories, and 63% held multiple simultaneous BNPL loans at some point during the year, a practice known as loan stacking that leaves total debt exposure invisible to any single lender. These are genuine vulnerabilities. However, BNPL default rates sit at roughly 2%, compared to 10% for credit cards. The borrowers are riskier, but the product is structurally safer, short duration, no revolving balance, no compounding interest. The risk is priced in.
On the regulatory front, the picture has actually brightened. The CFPB announced in 2025 that it will not reissue its BNPL interpretive rule, abandoning a 2024 attempt to classify BNPL products as credit cards under Regulation Z. The single largest compliance overhang hanging over the industry has been lifted. Affirm, Klarna, and Afterpay can now scale without the friction of dispute resolution frameworks and disclosure requirements that were designed for a product they are actively replacing.
Close to 46% of Gen Z consumers used BNPL in 2025, nearly double their 2023 rate, and this cohort is just entering its peak earning and spending years, years that, for the first time in a generation, may not include a credit card at all. Washington is repricing credit. Banks are retreating. The largest retailers in the country are already on board. For a decade, "split into 4 payments" was a line in fine print. It is becoming the headline.