Buy Now, Pay Later (BNPL) ...On Your Credit Card
Guttman-Kenney · Firth · Gathergood — Journal of Behavioral and Experimental Finance 37, 2023 (author WP on arXiv)
Thesis
BNPL isn't only replacing debit at checkout — a large minority of consumers are putting interest-free installments on their credit cards, converting short 0% debt into revolving 20%+ APR debt. The people doing it most are the ones least equipped to carry it: younger consumers and those in the most deprived areas. The authors' framing: this is refinancing unsecured debt with unsecured debt, and it prompts a straight regulatory question — should that even be allowed?
Method
- UK credit card transaction data covering a large share of the market; BNPL transactions identified by payment-processor tag (Afterpay, Klarna, etc. — PayPal excluded).
- Repeated cross-sections + panel of active cards through 2021; BNPL usage measured by card count, spend share, and geography (Index of Multiple Deprivation) and age.
- Careful scope work: distinguishes BNPL tagged via processors from store credit; triangulates against survey estimates of BNPL-on-credit-card prevalence.
Key findings
- 19.5% of active UK credit cards had at least one BNPL transaction (2021) — BNPL is already inside the credit card system. US estimate for the same behavior: 22%.
- BNPL on cards averaged 1.2–1.6% of all credit card spending in 2021, and grew fast (UK BNPL lending hit £2.7bn in 2020, more than tripling in one year).
- Typical amounts are small — median transaction £19.65, 96% under £100 — but per-card annual totals aren't: median £157, and 17.6% of users charged £500+.
- 84% of BNPL-on-credit-card spending comes from consumers aged 18–49; usage is 28–30% higher (by card count) in the most deprived areas.
- The mechanics are the problem: carrying that balance on a card means ~20% APR with decades-long minimum-payment amortization — and the age groups doing it most are the most likely to revolve (30% of 18–24s revolve vs 10% of 65+).
Limitations
- Credit card data can't see the BNPL side: no instalment schedules, no visibility of BNPL debt held elsewhere.
- Doesn't observe card repayments or interest actually paid — the harm channel is inferred from behavior, not measured balances.
- UK-only, 2020–2022 window (COVID-era online spending surge included); one data provider.
- Non-causal by design — this is a measurement paper documenting who does it, not an experiment.
So what for Nick
- The "0% interest" pitch has a back door: pay-in-4 charged to a card you revolve is ~20% APR borrowing wearing a 0% costume. If you use BNPL, never route it through a card that carries a balance.
- Young family members are the exposure group — the age/deprivation gradient says this is where a "free" payment plan quietly becomes expensive debt.
- The regulatory question in the paper is worth stealing for personal policy: if you wouldn't put the purchase on the credit card, don't let BNPL put it there for you.