BNPL Services Drive Retail Price Hikes and Consumer Debt

Research from the University of Washington in St. Louis and Auckland University of Technology indicates that buy now, pay later (BNPL) services are creating systemic financial risks for both retailers and consumers. A study led by Panos Kouvelis found that retailers are increasing sticker prices for essential goods, such as groceries, to offset the merchant fees charged by BNPL providers. Because grocery margins are thin, these price hikes effectively force customers who pay in full to subsidize those using financing.

Beyond pricing, the lack of regulation in the sector has contributed to a rise in phantom debt. In the United States, 47% of users reported late payments in the last year. Similar trends appear in New Zealand, where research shows 40% of young adults do not perceive BNPL as debt, and 43% of users have relied on other credit sources, such as credit cards, to meet their BNPL repayments.

While New Zealand brought BNPL services under the Credit Contracts and Consumer Finance Act in September 2024, reviews by Consumer NZ and FinCap suggest these reforms have not yet reduced financial harm. Experts warn that these services can damage credit histories without providing the benefits of traditional credit building, potentially leading users to live at the edge of their financial means.