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The Buy Now, Pay Later (BNPL) market has been through a period of rapid change in recent years, moving from a niche payment option to a mainstream part of the consumer finance landscape. The UK is among the more advanced BNPL markets, while the US remains the largest in absolute terms. Although BNPL accounts for a smaller share of e-commerce payments in the UK than in the Nordics or Germany, adoption is still well above the global average.
With new BNPL regulations coming into force and following the recent IPO of the industry’s poster child, Klarna, now is an opportune moment to take a closer look at how the market is evolving — and what these changes mean for existing financial institutions and the processes that support them.
Klarna’s has had a major impact on the UK BNPL market and continues to be a key player. However, its strategy has increasingly shifted towards more traditional banking services and payments, which is an interesting signal. Combined with Apple’s withdrawal of its BNPL offering, banks such as Monzo launching similar products, slowing growth, and rising credit losses, it is clear that the BNPL market has moved beyond its aggressive growth phase.
The cost of compliance is also a factor. While this presents challenges, it is not necessarily negative: Widespread adoption of BNPL without proper oversight creates risk for lenders and exposes customers to providers that may employ predatory practices, further increasing financial stress.
These developments also highlight the evolution of BNPL providers, many of which are expanding towards becoming broader “retail rails”, offering multiple payment options, marketing platforms or – as in Klarna’s case – digital banking services. Traditionally, BNPL has also been viewed as a counter-cyclical product, with its appeal increasing during periods of economic uncertainty.
From a broader perspective, the BNPL market still has considerable growth potential. Opportunities remain in increasing merchant participation, expanding customer adoption and deeper integration into existing financial infrastructure. Combined with ongoing cost-of-living pressures and the willingness of younger generations to use multiple financial service providers, BNPL continues to hold long-term growth promise.
For Bud, the emergence and adoption of BNPL providers has been a closely followed market development. Our data enrichment models have been quick to identify new transaction patterns and merchants, leading to the introduction of a dedicated BNPL spending category. This has been particularly valuable for clients relying on transaction-based insights into customer finances. Prior to BNPL reporting to Credit Reference Agencies (CRAs), a growing blind spot existed there, increasing the risk of misinterpreting a customer’s true financial position.
While reporting to CRAs is a step in the right direction, it does not replace the value of a transaction-based, open banking-powered approach. Having the most-up-to-date view of customer finances enables rapid detection of changes such as loan stacking. When combined with broader financial analytics, it also allows for a deeper understanding of spending behaviour involving BNPL.
Although BNPL can obscure the nature of spending – as the end merchant is no longer visible – shifts in spending categories can still be observed, potentially indicating which types of purchases are being financed through BNPL. Over time, this could be used to identify cases where essential spending is increasingly covered by BNPL, which may be a meaningful signal for lenders to consider.
Currently, Bud’s models and products clearly surface BNPL spending as a dedicated category, with individual providers identified. This insight is accessible across the platform, for affordability assessment in Assess, for customer segmentation and analytics in Drive, and for agents and advisors via the Focus dashboard. Of course, the same information can also be surfaced directly to the end customer via Engage, our personal finance management suite.
We expect BNPL to continue growing, although the boundaries between BNPL and adjacent financial products will increasingly blur as more established providers enter the space. This includes both payment platforms and retail banks, which are well positioned to embed BNPL-like offerings into their portfolios while leveraging existing customer relationships and partner networks.
BNPL providers have benefited from their ability to rapidly design and deploy new products, and this agility will remain an advantage. However, it remains to be seen whether this will be outweighed by challenges around risk management, rising customer acquisition costs, and intensifying competition.
Regardless of how the market evolves, Bud continues to closely monitor transactional patterns on behalf of our clients, ensuring that – irrespective of market share or product mix – we help drive positive outcomes for both financial institutions and their customers.
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