About 42% of those with household income of more than $100,000 report being behind or delinquent on buy-now-pay-later payments

Time and again, BNPL providers have resisted calls for greater disclosure, even as the market has grown each year since at least 2020 and is projected to reach almost $700 billion globally by 2028. This lack of transparency is obscuring the true financial health of American households, which is crucial information for global central banks, US regional lenders, and multinational businesses.

Consumer spending in the world’s largest economy has remained resilient despite stubbornly high inflation, causing economists and traders to repeatedly revise their forecasts for slowing growth and interest-rate cuts. Still, signs of financial strain are emerging. First, Americans began falling behind on auto loans. Then, credit-card delinquency rates reached their highest levels since at least 2012, with the share of debts 30, 60, and 90 days late all increasing.

There are indications that consumers are also struggling with their BNPL debt. A recent survey conducted for Bloomberg News by Harris Poll found that 43% of those who owe money to BNPL services said they were behind on payments, while 28% said they were delinquent on other debt because of spending on BNPL platforms.

For Quinlan, a major concern is that economic experts are being “lulled into complacency about where consumers are.”

“People need to be more awake to the risk of BNPL,” he said in an interview.

Blame Game

BNPL remains a black box largely due to a longstanding blame game among BNPL providers and the three major credit bureaus: TransUnion, Experian, and Equifax. BNPL companies don’t provide data on their installment loans split into four payments, which were used by online shoppers to spend an estimated $19.2 billion in the first quarter, according to Adobe Analytics, up 12.3% from the same period last year.

The BNPL giants claim credit agencies can’t handle their information and that releasing it could harm customers’ credit scores, which are essential for securing mortgages and other loans. The three major bureaus say they're ready to handle the data, while two major credit scoring firms, VantageScore Solutions and Fair Isaac Corp. (FICO), say they're equipped to test how BNPL products will affect their scores. Meanwhile, regulation is looming over the industry, but this stalemate has left the status quo largely unchanged.

Progress and Challenges

There have been signs of progress. Earlier this year, Apple Inc. became the first major BNPL provider to furnish transaction and payment data to Experian. Currently, it provides a snapshot of consumers’ overall debt load from Apple Pay Later transactions, but the information isn’t used for consumer credit scores.

In separate statements to Bloomberg, Klarna, Affirm, and Block said they want assurances that consumers’ credit scores and data would be protected before reporting customer information. Representatives for TransUnion, Experian, and Equifax said they’ve updated their systems and the data would be secure.

The lack of transparency has researchers at the Federal Reserve Bank of New York, which publishes a comprehensive quarterly report on the $17.5 trillion in US household debt, convinced they’re missing some of what’s happening in the economy.

“They’ve reached a certain scale that they could impact economists’ assumptions about their economic outlooks,” said Simon Khalaf, Chief Executive Officer of Marqeta Inc., a firm that helps BNPL providers process their payments.

Hiding Consumer Distress

The Harris Poll survey, conducted last month, provides some crucial insights into how Americans use BNPL. For one, splitting payments into smaller chunks encourages more spending.

More than half of respondents who use BNPL said it allowed them to purchase more than they could afford, while nearly a quarter agreed that their BNPL spending was “out of control.” Harris also found that 23% of users said they couldn’t afford most of what they bought without splitting payments, while more than a third turned to the services after maxing out their credit cards.