In the rapidly evolving world of consumer finance, buy now, pay later (BNPL) services have surged in popularity, offering shoppers a seemingly effortless way to spread out payments for everything from clothing to electronics. These installment loans, often interest-free for short terms, have captivated millions, with usage projected to hit 91.5 million Americans in 2025, up from 86.5 million the previous year, according to data from eMarketer cited in a recent CNBC report. Yet, this boom is raising alarms among traditional banks and credit card issuers, who view BNPL as a formidable rival that could erode their market share.

Banks like JPMorgan Chase and Citigroup are particularly concerned because BNPL platforms, such as Affirm and Klarna, bypass the need for credit cards by directly financing purchases at the point of sale. This direct-to-consumer model challenges the lucrative interchange fees that card networks like Visa and Mastercard rely on, potentially siphoning off billions in revenue. As one industry executive noted in the CNBC analysis, the opacity of BNPL loans complicates lenders’ ability to assess borrowers’ full debt loads, leading to potential over-lending and heightened default risks.

The Competitive Threat to Credit Cards and Its Ripple Effects on Lending Practices

Delving deeper, the reluctance stems from BNPL’s impact on credit scoring. Unlike traditional loans, many BNPL transactions aren’t reported to credit bureaus, creating blind spots in consumers’ credit histories. This invisibility worries banks, as it masks the true extent of a borrower’s obligations. For instance, a 2025 study from the Consumer Financial Protection Bureau (CFPB), detailed in their newsroom release, found that one-fifth of consumers used BNPL in 2022, with many juggling multiple loans from different providers, exacerbating debt accumulation.

Recent developments amplify these fears. FICO’s decision to incorporate BNPL data into credit scores, as reported by Fox Business in July 2025, could penalize users with defaults, leaving late payments on reports for up to seven years. This shift might deter risky borrowers but also highlights the sector’s growing pains, with delinquency rates for BNPL hovering below 1% in some cases, per Klarna’s second-quarter 2025 figures shared in a Morningstar article.

Regulatory Scrutiny and the Push for Transparency in BNPL Operations

Policy makers are stepping in amid these concerns. The CFPB’s 2024 actions, including mandates for dispute resolutions and refunds on BNPL loans, signal tighter oversight, as outlined in their Richmond Fed publication from January 2025. This regulatory wave aims to protect consumers, especially younger ones like Gen Z, who are flocking to BNPL as an alternative to high-interest credit cards, according to a Prosperity Issue analysis.

Sentiment on social platforms like X reflects broader unease, with posts from financial influencers warning of BNPL as a “predatory trap” for young Americans, echoing concerns in a Fox Business piece from August 2025. Transaction volumes are exploding, expected to reach $116.7 billion annually by year’s end, per data from The Kobeissi Letter on X, doubling from 2022 levels and highlighting consumers’ desperation for borrowing options amid economic pressures.

Market Projections and the Evolving Risks for Financial Institutions

Looking ahead, BNPL’s global market is forecasted to hit $26 billion by 2025, as per ElectroIQ statistics, driven by fintech innovations. However, this growth brings fraud risks, with a 2025 GlobeNewswire report emphasizing machine learning’s role in prevention. Banks are responding by launching their own BNPL offerings, but the challenge remains: integrating these into existing credit ecosystems without alienating customers.

For credit card companies, the wariness is compounded by BNPL’s appeal to inflation-weary shoppers. As The Economist opined in August 2025, this trend could democratize credit, yet it risks inflating personal debt bubbles. Industry insiders, per CNBC’s video segment, see BNPL as a direct threat, prompting strategic reevaluations to safeguard profitability in an era of fintech disruption.

Consumer Behavior Shifts and Long-Term Implications for Credit Markets

Evidence from studies like the 2024 New York Fed article by Aidala, Mangrum, and van der Klaauw, referenced in the Richmond Fed brief, shows BNPL users often carry higher credit balances, signaling potential overextension. This pattern is especially pronounced among those with multiple pay-in-four loans, as the CFPB’s January 2025 research revealed.

Ultimately, while consumers embrace BNPL for its flexibility—evident in Klarna’s blockbuster IPO on the New York Stock Exchange in September 2025, covered by Al Jazeera