Buy Now Pay Later Hits a Wall — And That’s a Good Thing

The BNPL boom was always going to end badly for the companies that treated “no credit check” as a feature rather than a problem. The reckoning has been gradual but real. Regulatory pressure, rising delinquencies, and funding market contraction all arrived roughly at the same time. The survivors are not necessarily the biggest names. They’re the ones that were doing real underwriting the whole time.

We were skeptical of the largest pure-play BNPL operators from early on. The market loved the growth metrics, and the growth metrics were real. But the underlying credit quality was opaque. When a lender doesn’t report to credit bureaus, doesn’t check credit history, and actively markets itself as a way for people to spend more than they’d otherwise be comfortable spending, the loss rates in a downturn are not a surprise. They’re a certainty.

What the Regulatory Shift Actually Did

CFPB guidance published in 2024 made it explicit: BNPL products are credit products and must comply with TILA. That means disclosures, dispute rights, and reporting requirements. It sounds procedural. It wasn’t. For the operators who had been deliberately avoiding the credit reporting system to prevent customers from seeing how much BNPL debt they were accumulating across multiple providers, this was a structural challenge.

Three things changed as a result:

• Customer ability to access credit across multiple BNPL providers simultaneously collapsed. When lenders can see existing BNPL obligations, approval rates drop and limits tighten.
• Reporting to bureaus created feedback loops. Customers with delinquent BNPL accounts now see it in their credit score. That’s appropriate — but it also made the product less attractive to the highest-risk segment that had been the growth driver.
• Dispute rights created operational complexity. Merchants and BNPL providers had to build real dispute resolution infrastructure, which adds cost and removes the frictionless merchant experience that was a core selling point.

Who Wins the Shakeout

The companies positioned to take share from the retreating players fall into two categories.

First: BNPL operators embedded in specific verticals where the purchase context creates natural underwriting signal. Healthcare BNPL, home improvement financing, and trade-specific credit programs all have information advantages that general-purpose BNPL lacks. A contractor financing $12,000 of materials for a job that already has a signed contract is a different credit decision than a consumer buying $800 of clothing.

Second: banks and credit unions offering BNPL-like products through existing customer relationships. They already have the underwriting infrastructure, the regulatory compliance framework, and the balance sheet. They were slow, but they’re now catching up. The advantage they bring is trust and cost of capital that VC-backed pure-plays can’t match when credit markets tighten.

The BNPL category didn’t fail because the consumer use case was wrong. People genuinely want to spread purchases over time without credit card interest. The category had a credit discipline problem, not a product problem.

The B2B BNPL Opportunity

One area we watch closely is trade finance and B2B BNPL. Small businesses buying from distributors or suppliers on net-30 or net-60 terms have long had access to rudimentary trade credit. But the digitization of B2B commerce is creating the data infrastructure to underwrite that credit properly and offer it at the point of purchase.

The market size here is substantial. US B2B trade credit outstanding runs into the trillions of dollars. Most of it is self-funded by sellers or intermediated through factors at high cost. A well-underwritten B2B BNPL product that plugs into procurement software can offer better terms than a factor, better data than a bank, and lower friction than an existing credit facility.

Loss rates on B2B credit have historically been lower than consumer. Businesses have credit history, identifiable revenue, and skin in the game from the vendor relationship they’re protecting. The underwriting challenge is real — small businesses lack standardized financial reporting — but the data signals available through bank account access, tax filings, and purchase history are better than they’ve ever been.

What We’re Looking For

Our investment criteria for BNPL-adjacent companies today: underwriting first, product second. We want to see loss rate data, not just approval rates. We want to understand the recovery function — what happens at 30, 60, 90 days delinquent, and what the collection infrastructure looks like. We want to see credit bureau reporting as a feature, not a regulatory concession.

The companies building BNPL products with real credit discipline will ultimately serve a larger and more durable market than the ones that grew by ignoring the credit fundamentals. The regulatory pressure accelerated that sorting. That’s why we think it’s a good thing.