BNPL Boom Threatens Credit Card Transaction Share

As the buy now, pay later market (BNPL) continues to climb to new heights, credit card issuers cannot afford to ignore the popular payment method. Those that do run the risk of losing transaction volume to firms that offer people the ability to pay for their purchases in installments.

A new market research report reveals that the buy now, pay later market has experienced a robust expansion in recent years, with a compound annual growth rate (CAGR) of 23.8% from 2022 to 2025.

The report, from Research and Markets, indicates the BNPL sector is expected to continue to expand through 2031. Research and Markets forecasts the CAGR for BNPL to come in at 15.1% from 2026 to 2031.

For credit card issuers seeking to frame this growth in terms of dollars, the report discloses that the industry could reach a value of $258.4 billion by 2031. Its value in 2025 was $107.3 billion.

Arika Selleck, Senior Vice President, Debit Product Strategy at Fiserv, told us that the rapid expansion of BNPL shifts it from a trend to a structural fixture.

Zip recently rolled out a product that allows users to pay for a purchase in two installments over two weeks.

“Buy now, pay later is poised to bring in more users and transform how millions of Americans conduct purchases of all sizes,” Selleck said. “Buy now, pay later is here to stay.”

As the market matures, companies that offer BNPL programs are giving their customers more choice. Models that allow customers to pay for a purchase in four installments have been popular with consumers. But some people may come to favor other payment formats.

Digital financial services company Zip introduced an option last week that permits customers to pay for purchases in two installments over two weeks. The company believes the service, called Pay in 2, will appeal to people who want to avoid committing to longer installment plans.

“Pay in 2 feels manageable and intentional, fitting naturally between paychecks,” Zip customer Destiny Modeste said in a press release on the product. “It wraps up quickly, before it becomes something I have to track, which makes those everyday moments feel genuinely stress-free.”

When a consumer turns to a BNPL product at the point of sale, it represents one less transaction that could have gone on a credit card and generated interchange revenue for a credit card company. Issuers may also be missing out on the chance to earn interest income on those transactions.

But credit card issuers don’t have to sit on the sidelines while buy now, pay later companies undergo meteoric growth. Selleck told us that issuers shouldn’t think of BNPL as a substitute for their business.

“We have encouraged our issuers to find a way to play with BNPL, not against it, given consumer sentiment is to think of this as a new payment type,” Selleck said. “Figuring out how to integrate this alternative payment method into existing solutions will further drive primacy with issuers and increase customer lifetime value.”

Some credit card issuers have already taken steps to adapt to changing consumer preferences around payments. Citi offers a program called Citi Flex Pay — which it offers in collaboration with Mastercard — that enables cardholders to pay for eligible purchases through fixed monthly payments.

Issuers can lose out on interchange revenue and interest income when a consumer elects to make a payment with a BNPL product rather than a credit card.  

Abhinav Anand, Head of U.S. Value and Unsecured Lending at Citi, said In a press release on the product that the solution brings real value to Citi’s customers and offered an opinion on the overall popularity of BNPL tools.

“The pay-over-time industry has continued to grow because it addresses a real consumer need for flexibility,” Anand said.

Some cardholders may prefer to have access to a BNPL product in addition to a credit card so they can decide which one best fits their needs for each particular purchase they make.

Selleck told us that the majority of BNPL users also have an open credit card. 

“While most think people use [BNPL] given a lack of credit options, the real reason is that users prefer the convenience and ability to spread out payments,” Selleck said. “Even with BNPL being used for an initial transaction, most people are using a card for repayment, which brings two or more payments to the card.”

Credit card issuers planning to offer programs similar to those from buy now, pay later providers should consider which customer segments are most attracted to BNPL products.

The report from Research and Markets indicates that people who use BNPL products are more likely to have credit scores in the subprime or deep-subprime category. 

According to the Consumer Financial Protection Bureau, borrowers with credit scores ranging from 580 to 619 fall in the subprime category, while those with scores below 580 fall into the deep-subprime classification.

An increase in the cost of living and the expense of carrying credit card balances from one month to the next may be driving borrowers with less than perfect credit scores to turn to BNPL products. Research and Markets highlights that BNPL is likely filling a need for people struggling to gain access to traditional credit products.

In the U.S., more than 46% of BNPL users are less than 36 years old.

Credit card issuers that offer customers the ability to pay for purchases in fixed monthly installments may be able to attract a younger generation of consumers who can provide long-term value to companies.

Data from Capital One reveals that more than 46% of people who use BNPL in the U.S. are under the age of 36. Meanwhile, only 4% of BNPL users around the world are over 55 years old.

“Major financial institutions understand that they need to digitally adapt to ensure customer retention, especially as younger generations increasingly shift towards seamless, point-of-sale financing over traditional revolving credit,” Selleck told us. 

“These younger consumers will look for the financial institutions that offer robust rewards programs and diverse payment plans that offer the most financial flexibility,” she added.