Is BNPL facing a reckoning?

Regulators in the U.S. and U.K. have voiced greater interest in reigning in BNPL providers. Consumer rights groups warn that consumers do not realize that they’re assuming debt through these services.

Why should we care?
BNPL platforms like Klarna and Affirm have experienced runaway growth in the past few years. The U.K., for example, saw £5.7B in BNPL transactions in 2021—more than double the year before. Regulators are concerned that the pandemic and other economic uncertainties have pushed consumers to assume more debt than they can realistically repay, and they eye BNPL as a keystone to that troubling development. In December 2020, for instance, the U.K. Advertising Standards Authority banned several Klarna advertisements because, allegedly, they “irresponsibly encouraged the use of credit to improve people’s mood.” And a third of millennials who have used services like Klarna have failed to repay on time and have been charged late fees. Such a high rate of attrition suggests that governments will tighten their control over BNPL in the months to come, perhaps requiring consumers to meet particular credit standards or demanding that BNPL companies explain their products more explicitly to user bases.