Buy now, pay later (BNPL) has evolved from a pandemic-era checkout novelty into an established payment method, though its high-growth phase is ending. With regulatory shifts, intensifying competition from credit card issuers, and changing consumer attitudes, retailers face new considerations when evaluating BNPL partnerships.

This FAQ covers what marketers and retail strategists need to know heading into 2026.

What is buy now, pay later?

BNPL is a payment method that divides a purchase into smaller installments, typically four payments over six weeks, often interest-free when paid on time. Unlike traditional credit cards, BNPL providers generally don't require a credit check for approval, though some run soft checks through credit bureaus.

When consumers select BNPL at checkout, the provider pays the merchant upfront (minus a fee), then collects installments from the consumer. Major providers include Klarna, Affirm, Afterpay (owned by Block), and PayPal Pay Later. BNPL accounted for 1.5% of total US retail sales in 2025, according to EMARKETER.

Which demographics use BNPL most?

Millennials and Gen Z dominate BNPL adoption, comprising roughly 65% of users. Millennials currently represent the largest share, with 34.6% of users in 2025 being of that generation. Gen Z accounted for 30.6% in 2025 and will become the largest generation of BNPL users by 2028, per EMARKETER forecasts.

Usage extends beyond younger generations. Parents with young children and consumers living paycheck to paycheck are more likely to use BNPL than other demographic groups, at 46.7% and 42.7% respectively, according to PYMNTS. BNPL use is also climbing among middle- and upper-income households seeking to preserve liquidity or capture merchant-specific deals.

Why are retailers adding BNPL at checkout?

Retailers add BNPL to increase conversion rates and average order values. BNPL removes price friction at checkout by breaking large purchases into manageable payments, particularly for higher-ticket items.

The data supports this: BNPL volume hit $747.5 million in online spending on Black Friday 2025, an 8.9% YoY increase, according to EMARKETER. Klarna reported its November volume grew 45% YoY, while PayPal's BNPL volume increased 23% YoY. Per-user spend surpassed $1,000 for the first time in 2024 and will reach $1,542.88 by 2028, indicating consumers are using BNPL for larger and more frequent purchases, per EMARKETER.

How does BNPL affect consumer spending behavior?

BNPL encourages spending but carries overspending risks. Some 49% of US BNPL users have experienced at least one problem with the payment method, per a Bankrate survey conducted in March 2025. The most common issues:

• Overspending: 25% said BNPL made them spend more than intended
• Missed payments: 16% have missed a payment
• Regret: 15% regretted a purchase
• Return difficulties: 14% had trouble obtaining refunds

Gen Zers were most likely to experience problems (66%), with overspending their top concern (30%). Only 14% of US consumers ages 18-25 said they prefer paying in installments; 59% would rather pay upfront, per USC research cited by EMARKETER.

What regulatory changes are affecting BNPL in 2026?

The regulatory landscape shifted significantly in 2025. The Consumer Financial Protection Bureau (CFPB) plans to revoke its interpretive rule that had classified BNPL providers as credit card issuers, which would have required them to provide the same consumer protections as traditional credit cards, according to EMARKETER.

This decision leaves BNPL in regulatory limbo. The Financial Technology Association (which counts Klarna, PayPal, and Block among its members) had sued over the original rule. Meanwhile, FICO is incorporating BNPL data into credit scores, though Affirm remains the only major provider reporting to credit bureaus. Retailers should expect regulatory uncertainty to persist through 2026 while monitoring state-level developments.

Who are the major BNPL providers?

Four providers dominate the US market:

• PayPal Pay Later: The fastest-growing major player with anticipated 2025 volume of $40 billion. Q3 2025 BNPL volume grew 20% YoY. 56% of US BNPL customers have used PayPal's installment services, per Lending Tree via EMARKETER. Offers 5% cash back on in-store and ecommerce BNPL purchases.
• Affirm: Current market leader with gross merchandise volume of $10.8 billion in fiscal Q1 2026 (up 42% YoY). Active consumers reached 24.1 million, according to EMARKETER. Only major provider reporting to credit bureaus.
• Klarna: European-based provider with strong US presence. The Klarna Card crossed 1 million signups in 11 weeks. Recently launched tiered membership with cash-back rewards, per EMARKETER.
• Afterpay: Owned by Block (formerly Square). Integrated with Google Wallet and Apple Pay.

Competition is intensifying from card-linked installments. Plan It by American Express, Chase's Pay Over Time, and Citi's Flex Play swept JD Power's 2025 BNPL satisfaction ratings, according to EMARKETER.

How should retailers evaluate BNPL partnerships in 2026?

Evaluate partnerships across four dimensions:

• Provider reach and integration: PayPal and Affirm offer the broadest US reach. Mobile wallet integrations (Apple Pay, Google Wallet) now enable in-store BNPL without QR codes, expanding use cases beyond ecommerce.
• Consumer fit: Match providers to your customer demographics. Gen Z and millennials favor fintech providers; older consumers show higher satisfaction with card-linked installments from their existing credit card issuers.
• Fee structure: BNPL providers charge merchants 2-8% per transaction. Compare against the incremental conversion lift and AOV increase for your category.
• Brand alignment: Consider consumer protection concerns. High rates of reported problems (49% of users) and Gen Z's ambivalence toward BNPL suggest positioning it as an option rather than a default.

Payment value growth is decelerating: 27.1% in 2024 to 19.2% in 2025 and 14.0% in 2026, per EMARKETER. BNPL remains a useful checkout tool but is maturing into a standard payment option rather than a growth driver.

EMARKETER forecast data was current at publication and may have changed. EMARKETER clients have access to up-to-date forecast data. To explore EMARKETER solutions, click here.

We prepared this article with the assistance of generative AI tools and stand behind its accuracy, quality, and originality.