Buy Now Pay Later in 2025: What Every Merchant Should Know

Buy Now Pay Later (BNPL) services like Klarna, Afterpay, and Affirm exploded during the pandemic. From 2020 to 2022, they gave shoppers an easy way to split purchases into smaller, interest-free payments. That convenience made them incredibly popular. For eCommerce brands, Buy Now Pay Later felt like a smart addition. It helped boost conversions, lowered cart abandonment, and made higher-ticket items feel more affordable.

But now, in 2025, the momentum is shifting. Growth has tapered off. Some shoppers are missing payments. Regulators are stepping in. Even major players in the Buy Now Pay Later space are evolving their strategies to stay competitive in a changing environment.

This shift is happening as total U.S household debt hits a record $18.2 trillion. At the same time, the federal government—under the Trump administration—is resuming efforts to collect on outstanding student loans. As household budgets stretch thinner, more shoppers are turning to installment payment options like BNPL just to keep up.

If you run a small or mid-sized online business, this shift matters. The Buy Now Pay Later tools you rely on might not work the same way for much longer. In this blog, we will explore what is changing, why it is happening, and what you can do to keep your checkout strategy strong as the Buy Now Pay Later space continues to evolve.

The End of Easy Money

Buy Now Pay Later platforms made it easy for shoppers to split payments over time, interest-free. What made that possible? Access to inexpensive capital. Providers used outside funding to pay merchants upfront while collecting payments from customers over weeks or months. As long as interest rates stayed low, this model was sustainable. But that is no longer the case.

In 2025, rising interest rates have increased the cost of borrowing. That means it is more expensive for Buy Now Pay Later companies to operate. The result is tighter credit checks, fewer customer approvals, and increased pressure to adjust fees or optimize operations. Some shoppers who previously qualified with ease are now getting declined.

For small eCommerce businesses, this is important. If fewer customers are approved for Buy Now Pay Later, you may see fewer completed checkouts. Conversion rates could dip, especially for higher-ticket items. And if platforms pass on more costs to merchants, offering Buy Now Pay Later could become more expensive. What was once a simple win now requires a more thoughtful approach.

The Rise of Regulation

Buy Now Pay Later services became popular so quickly that regulation lagged behind. But that is starting to change. As adoption has grown and as concerns over consumer debt have increased, governments and financial agencies are stepping in.

In many countries, Buy Now Pay Later is being brought closer to traditional lending under new frameworks. This includes stricter oversight, additional reporting requirements, and clearer consumer protections. These changes are designed to protect shoppers but also come with higher operational costs for providers.

As reported by The Associated Press, industry watchers warn that many consumers are taking out BNPL loans they can’t afford to repay. And because credit bureaus don’t consistently track BNPL activity, there are fewer safeguards and far less oversight. This lack of visibility into consumer risk is one of the key gaps regulators are now moving to close.

In response, some platforms may tighten approvals, update repayment terms, or reconsider their presence in certain markets. For merchants, this could mean fewer approved shoppers, updated rules, or service disruptions. Staying informed on regulatory shifts can help you anticipate changes and adapt smoothly.

Customer Struggles = Industry Risk

One of the biggest challenges facing Buy Now, Pay Later (BNPL) platforms today is the rising trend of missed payments. As consumers increasingly juggle multiple installment plans, falling behind becomes easier—and more common. What started as a convenient way to pay is now becoming a financial burden for many users. According to LendingTree 41% of BNPL users reported making late payments in the past year, up significantly from 34% the previous year.

For BNPL companies, this creates serious risk. Even when a shopper misses a payment, the platform still pays the merchant upfront—but recovering that money isn’t guaranteed. As defaults climb, providers are being forced to tighten approval criteria, rethink risk models, and invest more in consumer education. Klarna’s credit losses hit $136 million in the first quarter of 2025, up 17% year-over-year, signaling growing pressure on both consumers and BNPL providers.

If your business relies on BNPL at checkout, this matters. Higher delinquencies could mean stricter approvals, higher fees, or changes in how installment options are displayed. The more you understand these shifts, the better equipped you’ll be to adjust your strategy and maintain conversion rates without sacrificing stability.

Big Players Are Crowding In

The Buy Now Pay Later market is no longer limited to startups. Major financial and tech players like Apple, PayPal, and Chase have launched their own Buy Now Pay Later services. With existing user bases, strong brand repuations, and vast resources, these companies are making a big impact.

This creates a more competitive space. While established players like Klarna and Affirm are adapting to this new landscape, smaller Buy Now Pay Later startups may struggle. Some are leaving certain markets, merging with larger platforms, or pivoting their business models to survive.

For merchants, the takeaway is to think long term. Work with Buy Now Pay Later providers that are trusted, well capitalized, and aligned with your business goals. Choose partners that are likely to grow with you and not disappear when the market gets tough.

What This Means for eCommerce Brands

Buy Now Pay Later is evolving, not disappearing. But with higher costs, new regulations, and more competition, the way these services operate is changing fast. That brings real risks for small and mid-sized businesses.

Fewer customers may get approved. Some Buy Now Pay Later tools may change their terms or exit certain markets. Not every provider will continue offering the same level of service.

The smartest move is to stay flexible. Diversify your payment options. Monitor the performance of your Buy Now Pay Later tools. Regularly review your checkout flow to make sure it is working for your customers and your business.

Conclusion: Adapt or Risk Falling Behind

The BNPL boom may be behind us, but the space is far from finished. These services remain a powerful part of the online shopping experience. What is changing is the focus, shifting from explosive growth to long term sustainability.

As a business owner, your job is not to chase every trend. It is to build a checkout experience that is stable, convenient, and designed to last. That means offering choices, staying informed, and choosing payment partners who are built for the future.

The brands that win will not be the flashiest. They will be the most adaptable, thoughtful, and prepared.