In February 2026, the Federal Reserve Bank of Richmond released a detailed examination of the “buy now, pay later” (BNPL) sector, focusing on its rapid evolution and broader economic effects. Authored by economist Zhu Wang, the research report highlights how these short-term financing options have matured into a notable yet contained segment of consumer credit.
BNPL (or pay later) services, specifically the popular “pay-in-four” model, allow shoppers to split purchases into four equal, interest-free installments over six weeks, with the first payment due at checkout.
Unlike traditional installment loans that involve credit checks, interest charges, and bureau reporting, these products rely on soft underwriting and do not appear on credit reports.
This structure has fueled accessibility but also created measurement challenges for regulators.
Data from the Consumer Financial Protection Bureau (CFPB), covering major players including Affirm, Afterpay, Klarna, PayPal, Sezzle, and Zip, reveal dramatic early expansion followed by more measured growth.
Between 2019 and 2021, dollar origination volumes surged from $2.2 billion to $25.5 billion.
Since then, real-term growth has stabilized at approximately 20 percent annually.
Projections based on a log-linear model with a 2021 structural break estimate 2025 transaction volumes at around $65 billion from the six firms.
Accounting for market shares from a 2025 LendingTree survey, the broader BNPL ecosystem likely reached $70 billion in purchase volume last year—equivalent to just 1.1 percent of the more than $6.3 trillion in U.S. credit card spending.
Despite this expansion, the report concludes that BNPL poses limited threats to financial stability.
Because loans require a 25 percent down payment and are repaid quickly, average outstanding debt remains modest at roughly $3 billion nationwide—about 400 times smaller than the $1.23 trillion in revolving credit card balances at the end of Q3 2025.
Default rates have actually declined, with charge-off ratios falling to 1.83 percent in 2023 from 2.63 percent the prior year, well below comparable credit card figures.
Late-payment reports from surveys have ticked up slightly, yet aggregate stress indicators show no spillover into broader consumer credit markets.
Delinquency and charge-off rates across credit products have stabilized near pre-pandemic levels, while household debt service ratios hover close to historical norms.
On the consumer side, BNPL appeals strongly to subprime borrowers, who accounted for over 60 percent of originations in recent years.
Users typically maintain access to conventional credit and often carry higher balances on cards and other unsecured products than non-users.
However, researchers found no clear causal evidence that BNPL drives increased indebtedness; correlation may instead reflect individuals already facing tighter credit conditions turning to these alternatives.
Welfare implications appear mixed: many benefit from zero-interest financing that undercuts the 18–30 percent rates on revolving debt, yet others risk cash-flow mismatches, with nearly six in ten survey respondents expressing high confidence in repayment ability.
The landscape continues to evolve.
In 2025, Affirm began voluntarily reporting BNPL activity to credit bureaus to reward responsible borrowing and aid thin-file consumers, while competitors remain cautious about potential misinterpretation of short-term usage patterns.
As data collection improves, policymakers can better track this innovative credit channel.
Overall, the Richmond Fed assessment portrays BNPL as a small but valuable addition to the consumer finance toolkit. At its current scale, it neither endangers systemic stability nor demonstrably harms borrowers on aggregate.
