BNPL is expanding fast, and that should worry everyone

Nigel Morris, a co-founder of Capital One and a pioneer in subprime lending, has expressed serious concerns regarding the current economic landscape. As an early investor in buy-now-pay-later (BNPL) companies such as Klarna and Aplazo, he is troubled by the trend of consumers using these services for essential purchases, including groceries. During a recent discussion at the Web Summit in Lisbon, Morris highlighted this alarming shift, indicating that it reflects the financial struggles many Americans are facing. The data underscores his worries. A report from financial services firm Empower indicates that BNPL users in the United States have surged to 91.5 million, with 25% of them utilizing these services to afford groceries. This marks a significant departure from the initial marketing of BNPL for luxury items. Additionally, Lending Tree has reported rising default rates, with 42% of BNPL users making at least one late payment in 2025, an increase from 39% in 2024. This situation is more than just a consumer finance issue; it serves as a warning sign for the broader fintech ecosystem. The lack of transparency surrounding BNPL loans, many of which go unreported to credit bureaus, creates “phantom debt” that complicates lenders' ability to assess a borrower's financial health. Morris elaborated, stating that BNPL providers often operate without the necessary oversight, leading to potential systemic risks akin to those that preceded the 2008 financial crisis. Recent data from the Consumer Financial Protection Bureau (CFPB) revealed that around 63% of BNPL borrowers have taken out multiple loans simultaneously. The borrower profile is concerning, with nearly two-thirds having lower credit scores and a significant percentage being approved for subprime loans. Although the BNPL market is not yet on the scale of the mortgage crisis, the concentration of debt among stressed borrowers is alarming. Morris pointed out that while delinquency rates have not yet surged, there are unmistakable signs of trouble ahead. Unemployment has risen to 4.3%, and the end of the student loan payment moratorium has left millions in a precarious financial situation. Regulatory changes under the Biden administration aimed at increasing oversight of BNPL have been rolled back, further complicating the landscape. The ethical implications of BNPL lending are also being questioned. Morris emphasized the importance of a moral compass in consumer lending, suggesting that companies should be cautious about offering products that could lead consumers into deeper debt. The challenge lies in the opaque nature of BNPL companies, which often do not report to credit bureaus, preventing borrowers from using successful repayments to access better credit options. The BNPL model is evolving quickly, with traditional financial institutions and payment processors integrating these services into their operations. This shift raises concerns about the potential for a new form of systemic risk as BNPL expands into business-to-business lending, a market that dwarfs the consumer credit space. Morris's insights serve as a critical reminder of the vulnerabilities within the financial system. While he refrains from predicting an imminent crisis, he advocates for increased vigilance as the intersection of BNPL and traditional banking continues to blur. As the economic landscape shifts, the implications for consumers and investors alike could be profound, making it essential to remain alert to these emerging trends.