Gabriel Lucas, Director at Redbridge Debt and Treasury Advisory, elaborates on the factors determining BNPL’s success for merchants and the next steps in terms of regulations and consolidation. First appeared in Buy Now, Pay Later Report 2025 by Papers.
BNPL has seen massive adoption, but how has the landscape evolved recently? What are the key trends shaping the sector today?
Many things have changed regarding Buy Now, Pay Later (BNPL) since we talked about it in 2022. BNPL has evolved from a disruptor to a mainstream payment option. Once driven by ecommerce fintechs, it now faces competition from banks and payment giants. Regulatory scrutiny is increasing, especially in the EU, the UK, and the US, with stricter consumer protections, recently exemplified by Dutch government efforts.
The focus has shifted from rapid growth to profitability. Rising funding costs and defaults are forcing BNPL players to refine risk models and raise prices – some doubling in less than a year. Partnerships are deepening, with BNPL embedded in checkouts, banking apps, and B2B financing (e.g., the partnership between Klarna and Adyen or J.P. Morgan, two of the main global processors). The market is also seeing a divergence between interest-free, short-term BNPL models and longer-term instalment plans with interest, which align more closely with traditional credit.
Rising funding costs and defaults are forcing BNPL players to refine risk models and raise prices – some doubling in less than a year.
Beyond the marketing buzz, what tangible benefits does BNPL bring to consumers and merchants? How does it compare to traditional credit options?
For consumers, BNPL offers more flexibility than credit cards. The ability to split payments interest-free (if paid on time) appeals to budget-conscious shoppers, especially younger ones wary of credit card debt. Its seamless checkout experience also makes it an attractive alternative to traditional financing. An aspect often neglected is that whenever there is an issue when paying with most BNPL solutions, customers may feel confused: most of the time, they are invited to contact the BNPL provider instead of the merchant that sold the products or services they paid for. For merchants, BNPL boosts conversion rates, order values, and customer acquisition – but results vary widely. My advice: don’t assume what works for others will work for you, especially for enterprise merchants. Since BNPL providers assume credit risk, merchants get paid upfront, reducing financial exposure, which is valuable in sectors with high upfront costs. However, BNPL isn’t a one-size-fits-all solution. Unlike credit cards, it is limited to specific merchants and often lacks perks like chargeback protection or purchase insurance. Costs depend on late fees and interest for extended payments
BNPL is often associated with retail and ecommerce, but can it be a game-changer in other industries? What factors determine its success for different merchants?
BNPL’s potential extends beyond retail, with strong use cases in travel, hospitality, and healthcare, where instalment payments make high-ticket purchases more accessible. Even B2B transactions are adopting BNPL-like financing to improve cash flow. Success depends on ticket size, payment behaviour, and regulations. High-ticket, infrequent purchases (e.g., travel, medical) benefit more than everyday goods. Industries with predictable repayments and low default risk attract BNPL providers, while stricter lending rules may limit its applicability. Industries or merchants with tight margins often find BNPL solutions too costly and instead choose to pass fees to customers (a compliant approach, as surcharging currently doesn’t apply) or develop in-house alternatives. Some also turn to white-label providers, who offer a balanced solution by managing most of the IT workload and assuming the risk.
With increasing regulatory scrutiny and profitability concerns, what are the biggest hurdles BNPL providers and merchants face today? Can the model be sustainable long-term?
Regulatory scrutiny is the biggest challenge. Governments and financial regulators are addressing concerns around consumer protection, particularly regarding transparency, affordability assessments, and credit reporting. BNPL providers are now being required to conduct stricter credit checks and disclose terms more clearly, which may slow adoption and increase operational costs.
Embedded Finance will expand BNPL’s reach beyond traditional ecommerce checkouts, integrating it into banking apps and digital wallets.
Profitability remains another key issue. The original BNPL model, where providers generate revenue primarily from merchant fees, is under pressure due to rising funding costs. Many providers are exploring alternative revenue streams, including interest-bearing instalment loans, subscription-based models, and late payment fees. However, an overreliance on penalties could damage brand trust and lead to regulatory pushback. When it comes to sustainability, I believe it mostly depends on balancing growth with responsible lending. Providers that can develop robust risk models, diversify revenue streams, and operate within regulatory frameworks will be better positioned for long-term success. Merchants, on the other hand, need to evaluate BNPL partnerships carefully, ensuring they do not create unnecessary financial burdens for consumers while still benefiting from increased sales.
What’s next for BNPL? Will we see consolidation, innovations, or a decline in adoption?
I would say that the BNPL market is likely to undergo significant consolidation. Larger financial institutions and payment players are acquiring or partnering with BNPL providers, and smaller, unprofitable fintechs may struggle to survive independently. Regulatory pressures will also force weaker players out of the market, leaving a handful of dominant providers.
Innovation will continue to shape the space. AI-driven underwriting models will improve risk assessment, reducing default rates. Embedded Finance will expand BNPL’s reach beyond traditional ecommerce checkouts, integrating it into banking apps and digital wallets. BNPL could also evolve into broader financial services, offering credit-building features and savings tools. Adoption may slow in regions with stricter regulations, but demand for flexible payment options will persist. As long as BNPL providers can adapt to changing market conditions and consumer preferences, the model will remain an important component of the payment ecosystem, albeit with a more responsible and sustainable framework.