As interest rates rise and economic growth slows, Affirm, Afterpay, Zip, Klarna, and other BNPL services are beginning to see late payments or related losses
Wall Street Journal : Tweets: @sullycnbc , @matt_cochrane7 , @fedprom , and @hoofnagle Tweets: Brian Sullivan / @sullycnbc : Buy now, pay ... never? https://www.wsj.com/... https://twitter.com/... Matthew Cochrane / @matt_cochrane7 : BNPL worries: “Subprime consumers accounted for about 43% of shoppers who applied for payment plans or loans at retailers' checkout between the fourth quarter of 2019 and 2021 ... though they only made up about 15% of the U.S. adult population.” https://www.wsj.com/... @fedprom : Affirm, Afterpay and Klarna grew rapidly during the consumer-spending boom, but Investors have concerns as outlook looks cloudier Klarna reducing staff by 10% Affirm delinquencies doubled YoY https://www.wsj.com/... Chris Hoofnagle / @hoofnagle : Subprime + tech optimism = financial innovation “Subprime consumers accounted for about 43% of shoppers who applied for payment plans or loans at retailers' checkout ...though they only made up about 15% of the U.S. adult population.” https://www.wsj.com/...
Context & Ripple Effects
This WSJ report lands at the inflection point of the BNPL cycle: Affirm, Afterpay, Zip, and Klarna built their growth on a zero-rate consumer-spending boom, and the same rate-driven slowdown is now surfacing in their loan books as late payments and losses. The composition of that book was always the risk — subprime consumers made up roughly 43% of shoppers applying for payment plans between late 2019 and 2021, against about 15% of the U.S. adult population.
What followed confirms this was not a blip: a Bloomberg deep dive months later framed economic uncertainty, competition, regulators, and consumer debt as the sector's core problems, and by late 2023 US consumer groups and lawmakers were pressing Klarna, Affirm, and Afterpay over debt loads on younger and lower-income borrowers.
First-order effects
- Affirm, Afterpay, Zip, and Klarna absorb direct credit losses as late payments climb, while rising interest rates raise their own funding costs just as loss rates deteriorate.
- The subprime-heavy applicant base means the deterioration concentrates among the borrowers least able to absorb it, turning growth-era underwriting into current-quarter write-downs.
Second-order effects
- Regulatory attention hardens: consumer groups and US lawmakers move from watching the sector to formally challenging whether BNPL encourages excessive debt among younger and lower-income Americans.
- Competitive dynamics shift from customer acquisition at any cost to loss control, forcing every player in the cohort — including Klarna, which was still reporting revenue growth — to defend margins instead of GMV.
Third-order effects
- If the pattern holds, BNPL migrates from discretionary retail checkout toward essential household spending — later coverage shows lenders like Flex, Zip, and Affirm pitching loans for basic needs and a quarter of users financing groceries — embedding pay-later credit in everyday budgets rather than impulse purchases.
- Because most of these loans go unreported to credit bureaus, the sector builds up 'phantom debt' invisible to traditional underwriting, creating a systemic blind spot that regulators and credit bureaus would eventually have to address.
The trend: Buy-now-pay-later is evolving from a zero-rate discretionary-spending perk into an essentials-financing channel whose rising defaults and unreported 'phantom debt' pull the sector into the regulatory perimeter of mainstream consumer credit.