Starting Point: Repayment Psychology and Behavioral Differences
Over 70% of consumers who use BNPL spend without realizing they are going into debt because the word “debt” never appears on the payment screen. In contrast, even the phrase “minimum payment” on credit cards acts as a psychological cue. Many BNPL apps silently and automatically deduct payments. This prevents consumers from internalizing their payment responsibility. With credit cards, however, a conscious payment step is required—which increases spending awareness.
Forty-three percent of BNPL users transfer their debt to credit cards when they cannot make the payment at the end of the term. In other words, BNPL carries the risk of increasing credit card debt, not directly but indirectly.
Credit Reports and Score Effects
In the US, most BNPL providers did not report debt information to major credit bureaus until 2023. This allowed consumers to appear to have a “clean credit score” even while carrying significant debt. Credit card debt, however, immediately and directly impacts credit scores. Experian and Equifax have started listing BNPL debt in a separate “debt pool,” indicating the emergence of a financial ecosystem distinct from the traditional credit card system.
According to some financial advisors, individuals who regularly use BNPL may be subject to higher interest rates on mortgage or car loan applications due to the assumption that they exhibit “risky habits.”
Interest, Delay, and Penalty Mechanisms
While most BNPL systems appear “interest-free” at first glance, they apply late fees instead of fixed interest rates in case of delays. These fees are not fixed based on the total debt but vary and can become more expensive than credit card interest rates when repeated frequently. In credit cards, interest accrues when the minimum payment is made, but it is proportional to the transaction volume, offering a degree of flexibility.
In BNPL, missing a payment may result in your account being frozen or your next purchase being blocked. Some BNPL providers, such as Afterpay, classify delays as “behavioral penalties,” which not only serve as a penalty but also affect future creditworthiness. This means that users who are late may be offered fewer installments or have their credit limit reduced.
Commercial Operations and Retailer Strategies
BNPL is not just a payment method for sellers but a direct sales growth strategy. Store owners on platforms like Shopify have reported a 25% higher conversion rate and a 60% higher average cart value with BNPL. Retailers do not wait for payment in BNPL systems; they receive payment upfront from the provider and transfer the entire risk to the consumer and the BNPL company. With credit cards, chargeback and fraud risks still fall on the seller.
Unlike traditional credit card companies, BNPL companies use scoring algorithms based on shopping content rather than user history. For example, a user who spends a lot on fashion products is not considered “high risk,” but rather “target customer.”
Demographic Effects and Generational Differences
55% of Gen Z prefers BNPL over credit cards. This is because credit cards evoke a “debt culture” among this generation, while BNPL is perceived as more akin to a “subscription” model. The average age of BNPL users is 33. The average age of credit card users is 48. This age gap points to a serious gap in debt management experience and financial literacy.
Australia is one of the countries with the highest adaptation to BNPL systems. In fact, some young users in Australia have started their financial lives without ever using a credit card.
Digital Infrastructure and Approval Processes
Credit approval for BNPL services usually takes seconds because the transaction is approved without a “soft credit check” or any credit check at all. This creates the perception that the user has already been approved, significantly shortening the decision-making process. Credit card applications usually require a hard pull, which is recorded on the credit report and can cause a temporary drop in credit score. As a result, users tend to be more cautious and research the terms and conditions before applying.
BNPL providers' algorithms use non-credit metrics such as device fingerprinting, location, and shopping frequency to create instant scores. This is a model that is much more “technological but opaque” than traditional banking systems.
Consumer Protection and Regulatory Gaps
In the US, the CFPB (Consumer Financial Protection Bureau) launched its first comprehensive review of BNPL services at the end of 2022 because confusion over return processes, lack of debt tracking, and the inability to view multiple BNPL debts in one place posed serious risks. While credit card users have been protected by the Fair Credit Billing Act (FCBA) since 1974 against returns, incorrect charges, and fraud, this protection system is not yet established for BNPL users. Some BNPL companies redirect users directly to the retailer in case of payment refusal.
In the UK, the FCA announced in 2023 that it would subject BNPL providers to stricter oversight. However, the implementation of these regulations is progressing slowly, and many users are still experiencing issues with late fees, refunds, and transparency.
Marketing Strategies of Fintech Brands
The vast majority of BNPL companies focus on social media. Users who shop on TikTok and Instagram, in particular, are directed to the payment page, which encourages them to take action without rationalizing their purchase decision. While credit card companies typically focus on financial benefits such as “reward points, cashback, insurance” in their ads, BNPL companies convey the message “get it now, think about it later.” This difference demonstrates that user profiles vary even in the language used in ads.
Companies such as Klarna try to build loyalty by linking payment habits to gamification with names such as “beauty subscription” or “monthly clothing budget.” This reinforces shopping habits rather than financial discipline.
Spending Limits and Uncertainty
In BNPL services, the credit limit is not disclosed to the user in advance. The system reassesses each purchase. While this provides flexibility, it also makes it harder for users to plan their finances. Credit cards operate within a set limit, and users must restrict their spending within that limit. This creates a safer foundation in terms of the clarity of financial boundaries.
While some BNPL companies request additional information from customers for purchases over $1,000, most users can take on 4-5 different BNPL debts simultaneously without exceeding this limit. This creates a nested burden similar to a “debt matryoshka.”
Cancellation, Refund, and Transaction Tracking
With credit cards, the refund process can be tracked directly through the bank. However, canceling a BNPL purchase is typically initiated by the seller, then reported to the BNPL provider and may be classified as an internal credit—these processes are more complex for users. Some users continue making installment payments without realizing that the money is still being deducted from the BNPL system after returning the product. This is because BNPL systems do not perform “automatic debt tracking” when the return process is delayed.
Impact on Long-Term Credit Habits
Users who adapt to BNPL systems at an early age tend to stay away from traditional debt instruments such as credit cards or consumer loans in later years. This limits their opportunity to build a credit score history. A study conducted in the US found that 38% of BNPL users under the age of 25 have never applied for a credit card. This indicates the emergence of a generation that is growing up with a “borrowing without borrowing” model.
Twenty-three percent of individuals with BNPL habits report difficulty managing their credit card debt later on. This is because the convenience of BNPL's regular payment schedule catches them unprepared for the variable interest rates of credit cards.
Major Banks' Responses to BNPL and Efforts to Adapt
Major U.S. banks like American Express, Chase, and Citi introduced their own BNPL-like services, such as “Split Pay” or “Plan It,” after the widespread adoption of BNPL systems. In these systems, users can split large purchases into fixed installments. However, these bank-based BNPL systems still affect credit scores because they are tied to traditional credit scoring. So they are not as “invisible” as fintech-based BNPL.
Some banks are trying to gain a competitive advantage by offering extra points or cashback for BNPL transactions made through their own systems. For example, Amex Plan It users can earn Membership Rewards points on certain campaigns.
BNPL's Unregulated Areas: Gray Area Realities
BNPL systems are not technically classified as “credit,” so they are not subject to regulations such as credit limits, credit score reporting, or debt-to-income ratios in many countries. This provides fintech companies with significant regulatory freedom. Some BNPL providers can sell user data collected to third-party advertising platforms. This indicates that user behavior is classified for marketing purposes rather than financial ones.
Systems that offer BNPL products with different interest rates to high-risk user groups can function as a backdoor to providing interest-bearing credit. This results in users taking on debt without being part of a real credit agreement.
International Differences: Global Reflections of BNPL
Australia is one of the countries with the highest BNPL usage, with 75% of users having transacted with at least one BNPL provider. However, as of 2024, the Australian government plans to bring all BNPL providers under the scope of credit law. In Germany, providers such as Klarna offer a “buy now, pay later” button as the default option on shopping websites. This can lead users to be directed to BNPL without their awareness. This practice is now banned in the UK.
In Canada, BNPL services are subject to different regulations on a state-by-state basis. For example, in Ontario, BNPL services can only use the term “interest-free” in their advertising under certain conditions.
Future Trends and Potential Risks
Some BNPL companies are testing “subscription-based BNPL” models for after 2025. In these systems, users pay a fixed monthly fee to gain unlimited access to BNPL services. This model carries the risk of turning borrowing into a “Netflix-like” habit. Some tech giants (such as Apple Pay Later) have begun integrating their payment infrastructure with BNPL systems. This could lead to the concept of debt remaining “behind the scenes” even in hardware-based payment systems.
Experts note that with the widespread use of BNPL, personal financial education is becoming more critical. This is because users who are unaware of their debt are much more likely to spend beyond their means.
BNPL vs. Credit Card Comparison Based on Real Scenarios
If a user purchases an electronic device worth $600:
With a Credit Card: The monthly minimum payment could be around $35, and the remaining balance accrues an annual interest rate of 20-25%. The total repayment period could be 12 months, with a total repayment amount of $680-720.
With BNPL (e.g., Afterpay or Klarna): Four equal installments are scheduled, with payments of $150 every two weeks. If there are no delays, the total payment is $600. However, if two installments are delayed, a $20 penalty is added for each. In this case, the total repayment is $640, but the penalty is reflected as a “service fee” rather than a debt to the user.
So, while BNPL may seem cheaper at first glance, it can result in costs approaching credit card interest rates in case of delays.
User Experiences and Case Examples
A Reddit user reported that they made separate purchases with three different BNPL providers in the same month, missed six installments due to mixing up the payment dates, and ended up paying a total of $180 in penalties. While none of these transactions affected their credit score, they explained that the automatic deductions from their bank account disrupted their daily budget.
A user had to make two payments for a pair of shoes purchased through BNPL because the return process took 30 days. Once the return was processed, they received their money back, but the refund came from the seller, not the BNPL provider, despite having made two payments. This highlights the disorganized nature of the return process.
A female user said she couldn't keep track of her Klarna purchases because each purchase had a different installment schedule, so she started keeping a special calendar to keep track of them.
Key Findings and Highlights
Since debts in BNPL systems don't show up on credit scores, some users can hide their spending habits from their financial history. This externalizes personal budget management — debt is perceived as just a notification on a calendar.
Credit cards improve credit scores when paid on time, which can positively impact future applications for large loans such as mortgages or car loans. However, with BNPL, only “instant ownership” is provided, and no long-term credit history is established. BNPL systems are creating a new borrowing culture where technology and e-commerce converge. In this system, the user is not a consumer but a user profile guided by data-driven behavior.