The explosive growth of “Buy Now, Pay Later” (BNPL) services isn’t just a convenient financing option; it’s a warning sign of escalating financial stress for millions of Americans. Industry veteran Nigel Morris, co-founder of Capital One and early investor in Klarna, warns that the increasing use of BNPL, even for basic necessities like groceries, signals a deepening economic vulnerability. The numbers confirm his concerns: 91.5 million Americans now use BNPL, with 25% financing groceries as of early 2024, according to Empower.
The Rising Tide of Default
This isn’t the discretionary spending BNPL was originally marketed for. Borrowers aren’t just buying luxury items; they’re using these services to cover essential costs. What’s more alarming is the rising default rate: 42% of BNPL users made at least one late payment in 2025, up from 39% in 2024 and 34% in 2023, according to LendingTree. This trend isn’t isolated; it points to a systemic problem mirroring the conditions that preceded the 2008 mortgage crisis, but with one critical difference: it’s largely invisible.
The Phantom Debt Problem
Most BNPL loans aren’t reported to credit bureaus, creating what regulators call “phantom debt.” This means lenders have no way of knowing if a borrower has taken out multiple loans across different platforms. The credit system is operating in the dark. As Morris explains, “If I’m a buy-now-pay-later provider, and I’m not checking bureau data, I’m not feeding bureau data, I am oblivious to the fact that Nigel may have taken out 10 of these things in the last week.”
The Data Doesn’t Lie
Data from the Consumer Financial Protection Bureau (CFPB) reveals the extent of the problem: 63% of borrowers originate multiple simultaneous loans, and 33% take out loans from multiple BNPL lenders. In 2022, one-fifth of consumers with a credit record financed purchases with BNPL, up from 17.6% in 2021. Nearly two-thirds of borrowers have lower credit scores, with subprime applicants approved 78% of the time.
The Regulatory Vacuum
Regulatory inaction exacerbates the problem. The Biden administration initially attempted to treat BNPL transactions like credit card purchases, bringing them under Truth in Lending Act protections. The Trump administration reversed course, and the CFPB, under recent leadership changes, has deprioritized enforcement. The agency’s own report, focusing only on first-time borrowers, claims high repayment rates, while the overall late payment rate remains at 42%. This discrepancy highlights the data gap: we lack visibility into long-term borrower behavior, especially those juggling multiple accounts.
The Expansion into B2B Lending
BNPL isn’t confined to consumer spending. Companies are now aggressively moving into business-to-business (B2B) lending, where suppliers extend credit to buyers. The trade credit market represents $4.9 trillion in payables, four times larger than the entire U.S. credit card market. BNPL providers claim small businesses spending increases by 40% when they gain access to this type of financing.
The Securitization of Risk
The underlying debt is being packaged and sold to investors. Elliott Advisors purchased Klarna’s $39 billion British loan portfolio, KKR agreed to buy up to $44 billion in PayPal’s BNPL debt, and Affirm has issued around $12 billion in asset-backed securities. This mirrors the subprime mortgage playbook: slicing up risky debt, selling it to investors, and obscuring the actual exposure.
A Looming Crisis
The convergence of rising unemployment (4.3%), the end of student loan forbearance, and a regulatory vacuum creates a dangerous cocktail. The real danger isn’t just BNPL debt itself, but the cascading effects on other consumer credit products. The Federal Reserve Bank of Richmond warns that BNPL’s systemic risk comes from its spillover effects. Borrowers tend to prioritize BNPL payments over larger debts, leading to defaults on credit cards, auto loans, and student loans.
The AI Bubble Comparison
While the AI bubble dominates headlines, the BNPL crisis remains largely overlooked. The AI bubble is visible, but the BNPL problem is silent, affecting the most vulnerable Americans. The champagne is flowing in certain sectors, but the underlying economic vulnerabilities remain unaddressed. When consumer debt becomes unsustainable, the pain will be widespread, and even VCs will feel the impact.
The Bottom Line: The BNPL boom isn’t just a financing trend; it’s a warning sign of a brewing debt crisis. Regulatory inaction, coupled with the expansion into B2B lending and the securitization of risk, creates a dangerous environment. The silent debt crisis is unfolding, and the consequences will be far-reaching
