Buy Now, Pay Later (BNPL) has rapidly evolved from a niche payment option to a mainstream financial tool reshaping consumer behaviour and retail strategy. Once viewed as a convenient alternative to credit cards, BNPL now represents a significant shift in how individuals manage short-term cash flow, access credit and engage with e-commerce. Klarna’s recent New York Stock Exchange debut highlights this transformation, serving as a bellwether for investor confidence in scaled consumer‑fintech models.

BNPL growth trends and consumer behaviour

Millennials, Gen Z and women driving BNPL adoption

BNPL usage has surged globally, with spending volumes rising from just over $2bn a decade ago to $342bn in 2024. In the UK alone, more than 10 million people are expected to use BNPL services in 2025, with total spending forecast to reach $38.48bn, a 12% increase from the previous year. By 2030, this figure is projected to climb to $58.75bn.

This growth is driven by a combination of consumer demand, technological integration and shifting economic conditions. BNPL is now embedded directly into online checkouts, offering a seamless experience that many consumers find more psychologically appealing than traditional credit products. Its convenience and interest-free structure resonate strongly with digital-first shoppers, particularly Millennials and Gen Z, who are emerging as the most enthusiastic adopters.

Our 2024 Consumer Outlook survey of 2,000 UK shoppers confirms this trend, revealing that 54% of Millennials and 53% of Gen Z hold a BNPL account, compared to an overall average of 35%. Women are also more engaged with the service, with 55% reporting they have a BNPL account. Future use is set to climb further, with 75% of Gen Z and 70% of Millennials, along with 70% of women, saying they intend to use BNPL to spread the cost of purchases. This demographic profile aligns with wider market data. According to the Financial Conduct Authority’s 2024 Financial Lives survey, BNPL is most popular among adults aged 18 to 34, particularly women, lone parents, renters and those with low financial resilience. Many are in employment but have limited access to mainstream credit, using BNPL to manage essential spending and bridge short-term financial gaps.

Regional differences in BNPL usage

BNPL has developed differently across regions. In western markets, it is deeply integrated into e-commerce ecosystems and increasingly subject to regulatory oversight. In contrast, developing countries are seeing growth led by local fintechs, with payments often linked to mobile wallets or cash. Regulatory frameworks vary, creating challenges for cross-border comparisons and oversight. Despite these differences, the core appeal remains consistent. BNPL offers consumers a way to spread costs without interest, while retailers benefit from increased conversion rates and higher average order values.

Risks of BNPL and regulatory outlook

While BNPL offers convenience and flexibility, it also carries risks for the consumer. Late payment fees, misunderstanding of terms and over-reliance on borrowing for essentials can lead to financial strain. Some users do not perceive BNPL as debt, which may result in overspending and difficulty managing repayments.

Research indicates that BNPL users often have lower incomes and are more financially vulnerable than credit card users. However, default rates remain relatively low - around 2% compared to 10% for credit cards. Studies also suggest that BNPL use does not necessarily lead to increased borrowing from other sources, and in some cases, credit scores improve when BNPL repayment history is considered.

In the UK, regulatory scrutiny is intensifying. BNPL agreements are being brought under the Financial Services and Markets Act 2000, requiring providers to be authorised by the Financial Conduct Authority. New rules mandate affordability checks, clearer terms, and adherence to Consumer Duty standards. Consumers will benefit from stronger protections, including rights under Section 75 of the Consumer Credit Act and access to the Financial Ombudsman Service. These changes aim to ensure that BNPL is used responsibly and that users understand the risks and obligations involved.

Embedded finance and innovation

BNPL is increasingly part of a broader embedded finance trend. The US embedded finance market is projected to reach $7 trillion by 2026, with BNPL playing a key role in consumer payments and lending. Partnerships between fintechs, retailers and platforms are driving innovation, with Klarna, Affirm and PayPal integrating BNPL into wider financial ecosystems.

Open banking regulations and API-driven connectivity are enabling seamless integration between banks and fintechs. This supports new business models and enhances underwriting, fraud prevention and the customer experience.

Artificial intelligence (AI) is transforming BNPL operations. Visa and Mastercard have invested over $10bn in AI and cyber security, with Visa’s Advanced Authorization preventing $28bn in fraud annually. PayPal is developing agentic commerce capabilities, allowing AI agents to autonomously manage purchases and subscriptions. AI is also improving onboarding, retention and cross-selling. PayPal’s AI tools have doubled product activation rates among small businesses and reduced churn. These innovations are enhancing margins and expanding the addressable market.

The future of BNPL: key takeaways for financial institutions

For financial institutions, BNPL presents both opportunity and challenge. It offers a route to engage younger, underserved consumers and diversify revenue streams. However, it also requires robust risk management, regulatory compliance and technological agility. Retailers benefit from higher conversion rates and average order values, but must navigate consumer protection obligations and reputational risks. BNPL providers must balance growth with sustainability, ensuring responsible lending and transparent communication.

BNPL is no longer a fringe offering, it is a strategic lever in the future of finance. As the industry matures, stakeholders must align innovation with governance and growth with consumer outcomes. Financial services providers should assess their role in the BNPL ecosystem, whether as competitors, collaborators or enablers.

With continued regulatory evolution, technological advancement and consumer demand, BNPL is poised to remain a dynamic and influential force in global finance.

For more information, please contact Erin Sims or Robyn Duffy.

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