BNPL in Banking: Transforming Consumer Credit and Financial Services

Published Date : 09 October 2025

Posted by : Preeti Wani

In recent years, the Buy Now Pay Later (BNPL) model has been a game-changing innovation in the world of financial services. Once limited to fintech startups, BNPL is now firmly on the radar of traditional banks, reshaping how consumers interact with credit, how merchants convert sales, and how financial institutions expand their digital offerings. As global digital payments grow, banks are increasingly stepping into the BNPL space to remain competitive and relevant. This blog highlights the fast growth of BNPL, its integration within banking systems, regulatory considerations, and future potential.

What is BNPL and How Does It Work?

BNPL is a short-term financing option that allows consumers to make purchases and split the payment into interest-free installments, typically over a few weeks or months. Unlike traditional credit cards, BNPL does not need a revolving line of credit or annual fees. Instead, it is often installed at the point of sale, either online or in-store, providing a smooth checkout experience.
Popular BNPL players such as Affirm, Afterpay, Klarna, and Zip have dominated the early adoption of this model, particularly among Gen Z and millennial consumers. Now, banks such as Goldman Sachs, Barclays, Citi, and JPMorgan Chase are entering the arena to provide their own BNPL solutions or partner with fintechs.

The Global BNPL Market: Growth and Statistics

The rise of BNPL is backed by compelling data. According to Research Nester's predictions, the global BNPL market was valued at $90.8 billion in 2024 and is projected to reach $4.8 trillion by 2035, rising at a CAGR of 45.2% from 2024 to 2035. The other key statistics include:

• BNPL transactions contributed to 5.3% of global e-commerce spending in 2023, according to Worldpay’s Global Payments Report.
• In the U.S. alone, BNPL usage increased by 40% year-over-year in 2022.
• India's BNPL market is anticipated to hit $45-50 billion by 2026, up from around $3–3.5 billion in 2021.

These numbers reflect a growing consumer appetite for flexible payment options, particularly in a high-interest rate environment where credit card debt is becoming more burdensome.

Why Are Banks Shifting to BNPL?

Traditionally, in general, banks have focused on credit cards and personal loans to cater to customers needing installment credit. However, several compelling reasons are forcing banks to use BNPL models:

1. Customer Retention and Acquisition: BNPL appeals especially to younger, digitally native customers, many of whom are credit-averse. By providing BNPL, banks can hold onto existing customers and attract new demographics who might otherwise go to fintech competitors.
2. Revenue Diversification: Banks generate revenue from BNPL via merchant discount fees, late fees, and interest-bearing products for longer-term plans. This helps broaden income streams beyond traditional lending.
3. Data and Ecosystem Play: By combining BNPL into their mobile apps and credit ecosystems, banks get access to detailed consumer behavioral data, allowing better personalization, cross-selling, and fraud prevention.
4. Staying Competitive with Fintech Disruptors: Buy Now, Pay Later (BNPL) fintech firms are gradually eroding traditional banks’ hold on the credit card market. Take Affirm, for instance, its U.S. revenue rose by 39% year-over-year, reaching $1.9 billion in fiscal year 2023. As these digital players gain traction, banks are under increasing pressure to innovate or risk fading into irrelevance within the fast-changing payments ecosystem.

Top Examples of BNPL Integration by Banks

Many global banks have already begun providing BNPL products or forming strategic partnerships:

• Goldman Sachs (MarcusPay): Launched in 2020, MarcusPay helps consumers to finance large purchases via fixed monthly payments. The bank also acquired GreenSky, a BNPL platform focused on home improvement loans, for $2.24 billion.
• Barclays & Amazon Collaboration: Barclays teamed up with Amazon UK to grant installment financing to eligible customers to compete with existing solutions from Klarna and PayPal Credit. As of 2023, Klarna had 150+ million users with $63 billion in transaction volume.
• Citi Flex Pay: Citi Flex Pay enables eligible credit card holders to break up huge purchases into manageable installments with fixed payment schedules, all via the bank's mobile app.
• HDFC Bank: HDFC Bank has launched Smart EMI and Buy Now Pay Later specifications via its PayZapp platform, targeting India’s growing, tech-savvy middle-class consumers.

Benefits of BNPL in Banking

• Excellent Customer Experience: Banks granting BNPL give users more payment control, enabling them to manage budgets without building up high-interest debt.
• Increased Merchant Sales: Merchants benefit from higher conversion rates and larger basket sizes. BNPL users spend 20% to 30% more per transaction on average.
• Lower Delinquency vs. Credit Cards: While delinquencies prevail in BNPL, they are generally lower than traditional revolving credit due to shorter duration and a clearer repayment facility.

Future Outlook: The Evolution of BNPL in Banking

The BNPL model is maturing. What began as a fintech disruptor is now revolutionizing into an institutionalized credit product encoded within the banking framework.

• Integrated BNPL in Super Apps: We will experience more banks deploying BNPL into their mobile banking apps with real-time installment options at checkout.
• AI and Data-Driven Credit Decisions: With better machine learning models, banks can better assess risk and personalize repayment plans for users.
• Hybrid BNPL-Card Models: Emerging offerings may combine BNPL functionality with credit cards, allowing users to toggle between lump-sum and installment payments.
• BNPL in B2B Banking: Banks are also trying BNPL for small businesses, helping vendors to expand trade credit in a structured, digital format.

Conclusion

BNPL is more than a passing trend; it represents a paradigm shift in consumer credit. As regulatory clarity gets better and digital behaviors solidify, banks are uniquely positioned to scale BNPL safely and profitably, leveraging trust, compliance infrastructure, and existing customer relationships. The success of BNPL in banking will depend on thoughtful integration, responsible lending, and consistent innovation to balance convenience with financial health. In a world that values speed, transparency, and flexibility, BNPL is not just a payment option; it’s a strategic pillar of modern next-gen banking.