The Four-Installment Christmas

Nothing says holiday cheer quite like splitting that purchase into four easy payments. Buy now, pay later services are having their biggest season yet, with spending during the November through December period expected to hit $20.2 billion, according to Adobe Analytics. That's an 11% jump from last year, and honestly, it makes sense when you consider how deeply these services have woven themselves into the fabric of American shopping habits.

The numbers tell a compelling story about how quickly this has all happened. Annual BNPL spending is on track to reach $116.7 billion in 2025. That's double what it was in 2022 and more than seven times the 2020 figure. What started as a niche financing option for online shoppers has become a mainstream payment method faster than almost anyone predicted.

PayPal Holdings Inc. (PYPL), one of the biggest players in this space, surveyed shoppers last month and found that half of holiday buyers are likely to use BNPL services if they're offered at checkout. From a merchant's perspective, the incentives are obvious. Michelle Gill, PayPal's General Manager, notes that offering BNPL leads to a 91% higher average order value for large enterprises and 62% higher for small businesses. "It isn't just a nice-to-have, it's a proven advantage to win," Gill said.

When Groceries Go On Layaway

Here's where things get a bit concerning. Over the past year, more consumers have started using buy now, pay later financing for everyday purchases like groceries. That's not people splurging on luxury items or big-ticket electronics. That's people financing food, which suggests deeper financial strain than these services were originally designed to address.

The fees can sting hard for borrowers who miss payments, and it turns out a lot of people are missing payments. According to a survey by LendingTree Inc. (TREE), 41% of BNPL users admit to missing payments. That's up from 34% last year, a trend heading in exactly the wrong direction.

Financial planners are starting to raise red flags about what these services do to people's spending psychology. Linda Grizely, a Certified Financial Planner, puts it bluntly: "The problem is that they can create a false sense of affordability, making it much easier to say yes to purchases that may not fit within someone's broader financial situation."

Grizely does see one positive development: the recent decision to include BNPL spending and payment habits in credit scores. She argues this "brings more transparency and accountability for both lenders and borrowers," which at least gives everyone a clearer picture of the debt they're taking on.

Washington Wakes Up

The regulatory mood is shifting, and it's shifting fast. Earlier this year, conservative commentator Charlie Kirk called out the "predatory" nature of these services during an interview with Tucker Carlson, weeks before his assassination in September. Kirk warned about long-term consequences for Gen Z's financial health: "This generation can't own anything. They owe so much more money than generations prior."

Politicians are starting to pay attention. Last week, Senator Kirsten Gillibrand (D-N.Y.) introduced the Buy Now, Pay Later Protection Act, which would update the Truth in Lending Act to extend credit card-style consumer protections to certain BNPL loans. It's an attempt to bring these services under the same regulatory umbrella that governs traditional credit products.

Meanwhile, Connecticut Attorney General William Tong announced a multistate investigation into major BNPL providers earlier this month. The inquiry targets Affirm Holdings Inc. (AFRM), Afterpay (owned by Block Inc. (XYZ)), Klarna Group PLC (KLAR), PayPal (PYPL), Sezzle Inc. (SEZL), and Zip Co. Ltd. (ZIZTF).

Tong's office is seeking information on fees, disclosures, repayment structures, and consumer risks. The probe warned that BNPL products "may expose consumers to unclear terms, hidden fees, and debt traps."

Braden Perry, a former CFTC enforcement attorney and partner at Kennyhertz Perry, says the state actions reflect deeper problems with how the sector is regulated. "Buy Now, Pay Later isn't lightly regulated, but inconsistently regulated," Perry explained. "The same product can be treated as a loan in one state, an installment contract in another, and effectively unregulated in a third."

That fragmented approach "creates confusion for the consumers (and the entities) and invites regulatory arbitrage by design," according to Perry. He argues the recent attorney general actions reflect "regulatory frustration" as much as genuine consumer protection concerns.

None of the companies targeted in the multistate inquiry responded to requests for comment on this matter.

A Rough Year For The Sector

Despite all the growth in transaction volume, 2025 has been a challenging year for BNPL stocks. The performance across major players has been decidedly mixed, and for many companies, decidedly negative.

PayPal (PYPL) is down more than 30%, while Klarna (KLAR) has fallen nearly 32%. Block (XYZ) is off almost 25%. On the flip side, Sezzle (SEZL) has surged 65%, and Affirm (AFRM) is up nearly 26%.

The Global X FinTech ETF (NASDAQ:FINX), which invests across several leading buy now, pay later service providers, is down about 2% for the year. The fund scores poorly on momentum metrics, showing unfavorable price trends across short, medium, and long-term timeframes.

What Happens Next

The BNPL sector finds itself at an interesting crossroads. Transaction volumes are soaring, merchants love the higher order values, and consumers clearly want the flexibility these services provide. But the cracks are showing. Rising missed payments, people financing groceries, and regulators from multiple states launching coordinated investigations all point to a sector that grew faster than its risk management infrastructure could handle.

The regulatory push isn't just about protecting consumers from predatory lending. It's also about creating some consistency in how these products are treated across state lines. Right now, the same BNPL service can face wildly different rules depending on where you live, which makes compliance a nightmare and consumer protection spotty at best.

For investors watching the space, the mixed stock performance reflects genuine uncertainty about what comes next. Will new regulations crimp growth and margins? Will rising delinquencies force providers to tighten lending standards? Or will the sector mature into something more sustainable, with clearer rules and better consumer outcomes?

One thing seems certain: the days of BNPL operating in a regulatory gray zone are coming to an end. What emerges on the other side will determine whether this payment innovation becomes a permanent fixture of retail finance or a cautionary tale about moving too fast and breaking too many things.