Commercial Business

How BNPL Firms can Unlock Profitability During Uncertain Economic Times

How BNPL Firms can Unlock Profitability During Uncertain Economic Times

February 12, 2024 | Jake Osborne

Two years ago, Buy Now Pay Later (BNPL) firms were legit Fintech superstars. Globally, transaction values soared by $87 billion from 2019 to 2021, reaching a total of $120 billion representing a 260 percent increase.  In the United States alone, the number of BNPL loan originations surged an eye-popping 970 percent, reaching 180 million according to a group of 5 surveyed lenders.¹,²

Fast forward to the end of 2023 and the landscape is a little different. 

It remains a remarkable high-growth market, with $576 billion in projected global BNPL transaction values by 2026. However,new challenges are emerging.¹ As more niche firms enter today’s BNPL market, investor funding is also contracting.³ The number of Americans who report using the service is declining.⁴ Today’s higher interest rates are adding pressure to profitability. And regulatory scrutiny is mounting. 

Call it growing pains, but clearly, the market is changing. Here, we’ll unpack important shifts impacting today’s BNPL companies, and explore four sure-fire strategies BNPL providers can use to help sustain business growth amid uncertain market conditions in the months ahead. 

We’re not in 2021 anymore.

BNPL blew up during the peak pandemic years. But a lot has changed since then, creating a mixed bag of market conditions and challenges for this maturing market.  

  • Economic uncertainty. In 2021, the U.S. economy experienced its strongest growth in decades. Yet, by 2022 the economy contracted and annual growth steadily declined — a trend that’s expected to continue into 2024.⁵,⁶ This economic uncertainty is keeping consumers on edge about spending. In fact, the retail industry has created an acronym for the current market vibe: VUCA (volatile, uncertain, complex, and ambiguous).⁷ Consumers are battling stubborn inflation, high interest rates, and skyrocketing credit card debt. Nearly 13 percent of consumers are worrying about losing their jobs in 2024, according to a Federal Reserve report.⁸

  • Declining BNPL users. Today’s economic unease might help explain another trend. The percent of consumers reporting BNPL use is down for the second straight year. In a survey from The Motley Fool Ascent, 35 percent of respondents reported having used BNPL services. This is down from 50 percent in 2022 and 56 percent in 2021.⁴ This is likely linked to consumer spending trends. According to some informal polls spending trends are tightening in response to inflation. 

  • BNPL profitability. Two years ago, Fintech investors were chasing top-line revenue as BNPL firms experienced explosive growth. In 2023, global investment in BNPL start-ups fell to its lowest deal activity and investment in five years.⁹ As a result, competition for investment dollars is fierce. Many BNPL companies struggle to show profitability amid today’s high-rate lending market.³ This increased attention to profitability may require BNPLs to rethink how to attract investment capital.  

  • Market saturation. Today, there are roughly 200 BNPL companies globally. More niche players are constantly entering the space.¹⁰ Even banks and big companies like Apple are joining, creating more options than ever for consumers. This could potentially dilute revenues and confuse buyers—especially first-time BNPL users—since some merchants now include multiple BNPL links on their online checkout page. Many in the industry are wondering where to go next, while enterprising firms are developing their own payment gateways and “front-end” co-marketing opportunities with retailers.¹¹

  • Increased regulatory scrutiny. After operating with little to no oversight in recent years, frontline consumer advocates are increasingly scrutinizing BNPL services, calling for increased transparency, regulation, and consumer protections. Specifically, the U.S. Consumer Financial Protection Bureau (CFPB) released a September 2022 report outlining its concerns and promising future guidelines. Likewise, states like California, Massachusetts, and Oregon, as well as global organizations like the European Union and specific countries are developing BNPL regulatory reviews and guardrails.¹²

According to one report, the uptick in regulatory activity “could accelerate market consolidation, as companies will be forced to adapt to regulators’ demands in various geographic markets.” Today’s BNPL firms are closely monitoring the fluid regulatory environment.  

Yet, opportunity is everywhere.

Despite market-defining economic shifts and predictions of a looming recession, the economy is holding steady (though still uncertain) and opportunities for continued BNPL growth are ripe. In fact, the 2023 holiday season provided a sizable boost that had the industry feeling like 2021 again. 

2023 BNPL usage hit a record high driven by the holiday season. $16.6 billion was spent online using BNPL services over the holiday season representing a 14 percent increase from 2022 and an all-time high, per Adobe Analytics. In November alone, BNPL transactions increased 17.5 percent from 2022 to $9.2 billion, making it the largest month on record. In 2023, consumers spent $75 billion online using BNPL services, up 14.3 percent from 2022.¹³

The holiday surge in BNPL usage underscores the growing mainstream appeal of this flexible payment option. This trend is likely to continue in 2024, with BNPL providers expanding their offerings and reaching new customer segments. 

  • Consumers want payment alternatives. Today’s economic uncertainty is a sword that cuts both ways in the BNPL market. Many consumers are feeling the crunch of a higher cost of living and pulling back their spending, but also looking for alternative payment options when they do spend. BNPL fits the bill for many, a fact that’s supported by consumers’ response to a survey on BNPL services, which: 

  • 45% say it’s easier to make payments.

  • 44% say it offers more flexibility.

  • 36% enjoy lower interest rates. 

  • 33% appreciate easy approval.¹⁴

This points to a vast audience of interested consumers, including many who are locked out of traditional financial services due to having a thin credit file or no credit history. Up to 63 million Americans fall into this category and rely largely on alternative financing options.¹⁵ If BNPL providers can gain a better understanding of this expansive audience and target high-potential consumers with personalized messaging and offers, they stand to win more of this business at the point of sale and beyond, potentially becoming a long-term, preferred provider. 

  • Age demographics may provide a natural boost for BNPLs. As Gen Z comes of age and exerts more consumer purchasing influence, BNPL providers should expect a lift. An Equifax study of BNPL applicants in the U.S. confirmed that user demographics skew toward younger shoppers. The same study reported that 20 percent of applicants are new to credit. Some young shoppers will use credit for the first time by responding to a BNPL offer at a merchant point of sale. 

Case in point. A full 50 percent of consumers aged 25 to 44 have used BNPL services, with nearly as many—42 percent—of adult consumers 24 and younger having used it.4 Given that these consumers, namely Gen Z and Millennials are, together, expected to comprise more than 60 percent of the workforce by 2025, this provides an interested, engaged, and potentially highly lucrative prospect and customer base for BNPLs moving forward.¹⁶,¹⁷  

  • A movement toward credit bureau reporting. With regulators at the state, federal, and global levels focusing their sights on the BNPL industry, some BNPL companies are starting to proactively contribute their payment data to credit reporting agencies. Notably, Affirm, one of the largest BNPL providers, said it’s “leading the charge” on reporting account information, and at least one smaller BNPL firm has a made a similar commitment as of March 2023.¹⁸

Reporting payment data to consumer reporting agencies can make an impact in more ways than one. On the regulatory front, it increases transparency by providing deeper visibility into a consumer’s true debt load. This directly addresses concerns raised by the CFPB and helps provide a tangible mechanism for improved transparency and oversight. 

In turn, the improved visibility can also help BNPL lenders and others protect their bottom line by reducing the probability of default linked to overburdened consumers. Being able to better mitigate or even reduce losses, especially in today’s thorny economy, supports overall profitability. 

While the right-now growth opportunities for BNPL providers are immense, knowing where or how to get started down that path can be paralyzing. Next up, we’ll share a few data-driven ideas to point companies in the right direction. 

4 Ideas to unlock immediate BNPL growth and profitability.

Instead of focusing exclusively on top-line revenue growth, think about the individual parts of the lending or customer lifecycle. Look for smart ways to use data—both existing customer data and fresh third-party data—to help improve those decisioning moments and help attract new merchants, deepen existing merchant relationships, increase average customer order value, reduce fraud and default risk, and more. 

1. Improve your merchant vetting and onboarding. Moving forward, BNPLs can think about extending their reach into more niche retail markets, which can involve targeting smaller merchants. As they do, the risk of inadvertently partnering with a fraudulent business may rise, potentially threatening the BNPL’s reputation with consumers. 

For example, if a BNPL customer has a bad experience with a fraudulent or failing merchant—say, the merchant never ships the purchase—the customer could potentially associate the incident with the merchant and the BNPL and avoid both in the future.   

Having the ability to quickly and accurately vet potential retail partners, especially smaller businesses that lack a traditional business profile, is crucial to sustainable growth. 

Potential action items:   

  • Review and thoroughly understand all data sources powering the merchant vetting process. Confirm that the sources include comprehensive small business coverage.

  • Ensure all merchant due diligence processes are regularly reviewed, updated, and documented to align with best practices and industry standards. Consider automated merchant monitoring to detect day-to-day transaction anomalies and new patterns or trends.

  • Consider adding new data assets or technology to help improve merchant onboarding via faster and more effective merchant vetting.

2. Increase the value proposition to your merchant partners. BNPLs can use their data to help merchants target more personalized offers to customers based on the habits and preferences revealed in their BNPL account profiles and transaction history. This can help boost average order value and other growth metrics. 

BNPLs should also consider integrating relevant third-party data to further enrich their subscriber data and build more complete views of consumer behavior. In turn, these insights can be used to nurture deeper relationships with their customers.  

Potential action items:   

  • Look for third-party data that offers a more detailed understanding of consumer income, lifestyles, wealth, assets, and preferences. 

  • Prove the ROI of merchant fees by demonstrating consumer reach and the quality of the customer base that is ultimately brought to the table.

  • Seek to become the sole BNPL provider for retailers by offering incentives (e.g., lower fees, “preferred status” within a mobile app, or access to consumer data) in exchange for an exclusive partnership. 

3. Increase the value proposition to your consumer customer base. Some BNPLs are expanding beyond pay-in-four financing to include traditional banking products. Moving forward, sustainable growth will hinge on BNPL's ability to monetize their highly engaged base—particularly those who are new to banking— and craft tailored customer experiences via loyalty programs, apps, personalized cross-selling, and more.  

Potential action items:   

  • Expand existing BNPL customer profiles with third-party data to help identify buyers who may be targets for other retail products and services. For example, those with high incomes and high credit scores may be prime targets for high-end stores via BNPL shopping apps, while those with lower incomes and slimmer credit reports may be more suited to installment loans for large purchases.  

  • Help advance consumer financial health by using alternative data—including payment data for “every day” bills that aren’t typically included in a traditional credit file—to offer greater access to credit to consumers who may have been denied otherwise. 

  • Give consumers a path to improve their credit by reporting their BNPL payment data to a credit bureau partner. It can be beneficial to all parties involved—consumers, BNPL firms, and the credit industry generally—while also addressing key concerns raised by industry regulators.   

4. Reduce losses from fraudulent and non-paying customers. Fraud and payment delinquencies can directly offset revenue growth. As BNPL becomes more widely accepted for higher-priced goods and services (e.g., household appliances, medical expenses), incidents of fraud and non-payment will likely increase. BNPLs must find ways to maintain low friction in the customer identity verification process while protecting against:

  •  transaction fraud,

  •  account takeover,

  •  and synthetic ID fraud.  

Potential action items:   

  • Consolidate access to digital footprints and ID verification information—including:

    •  multisource payment,

    •  location, 

    • customer, 

    • and digital identifier data

—under a single, trusted data provider to speed up identity verification and improve accuracy.

  • Reduce the potential for back-end payment delinquency by integrating unique, highly predictive alternative data on the front-end, within the identity verification and approval processes. 

  • Consider partnering with a provider that specializes in digital fraud, identity, and compliance for access to next-generation fraud mitigation technology, software, and analytics, and timely insights around fast-changing fraud trends and leading best practices.  

Embracing the future, one transaction at a time. 

The BNPL market has come a long way in a short time. It is well-positioned to continue its exponential growth trajectory. But, companies must also contend with emerging challenges that will continue to evolve as consumers and merchants respond to today’s unconventional and often unpredictable economic conditions. 

To sustain and accelerate business growth moving forward, BNPL firms must place a razor-sharp focus on improved transparency and profitability throughout the entire lending lifecycle. By harnessing and employing the power of data-driven intelligence to better understand consumers and merchants, BNPL companies can grow their customer base with more financially inclusive products and services that profitably advance their business—and the larger industry—one transaction at a time. 

Want to learn more? Explore other key issues and strategies within the BNPL market in our white paper.  DOWNLOAD NOW


1 ‘Buy Now Pay Later’ global transaction value reached $120 billion in 2021, according to GlobalData - GlobalData

2 Buy Now, Pay Later: Market trends and consumer impacts (

3 March 2023: The Bursting FinTech Bubble Places Primacy on Profitability: The BNPL Issue

4 Study: Buy Now, Pay Later Use Declines for Third Straight Year | The Motley Fool

5 United States economic outlook: 2021 year-in-review and first quarter of 2022 | CEPAL

6 World Economic Outlook, April 2023: A Rocky Recovery (

7 Holiday Retail 2023 Growth Forecast May Be Realized, But 2024 Is Another Story (

8 Consumers’ Expectations Largely Stable in October - FEDERAL RESERVE BANK of NEW YORK (

9 BNPL funding cools off in H1 after $6.9bn investment frenzy in the last five years - FinTech Global

10 BNPL companies face grim outlook, Moody’s says | Payments Dive

11 Buy now, pay later (BNPL) services | Star Insights

12 PYMNTS Intelligence: Governments Around the World Explore BNPL Regulation -

13 Adobe: Online holiday spending hits record-breaking $222 billion | Chain Store Age

14 Buy Now, Pay Later Statistics | Bankrate

15 The Costs Of Being Unbanked Or Underbanked – Forbes Advisor

16 (28) Gen Z Will Make Up Twenty-Four Percent of All Employees by 2025 | LinkedIn

17 (28) No, Millennials will NOT be 75% of the Workforce in 2025 (or ever)! | LinkedIn

18 BNPL remains mainly absent from consumer credit histories | Payments Dive

Jake Osborne

Jake Osborne

Payments and Fintech Executive

Jake Osborne has twenty years of experience working across Fintech and Payments. He worked through several senior roles within Payment Services at a top 5 bank, joined a start-up to launch a fintech division, and then went on to lead Amazon’s Strategic Payment Partnerships. Jake joined Equifax in 2022 and is currently [...]