Odd Lots — What's Behind the Boom in Buy Now, Pay Later
Original Air Date: September 4, 2025
Hosts: Tracy Alloway, Joe Weisenthal
Guest: Julie Morgan (President, The Century Foundation; former CFPB official)
Episode Overview
This episode delves into the explosive rise of Buy Now, Pay Later (BNPL) services such as Klarna and Affirm. The hosts and guest, drawing on deep regulatory and consumer insights, explore how BNPL has transformed from a pandemic-era shopping option to a major force in personal finance—affecting credit, regulation, and even public policy. They untangle the models behind BNPL, its impact on consumer behavior, and the growing policy debate about its risks and future.
Key Discussion Points and Insights
1. The Surprising Ubiquity and Allure of BNPL
- Tracy Alloway opens with a confession about her online shopping habits, noting the sudden omnipresence of BNPL options at checkout ([01:24]).
- Joe Weisenthal expresses bewilderment at why consumers wouldn't always want to spread out payments with no interest ([02:08]).
- Tracy shares a pop-culture comparison: "You know how Rebel Wilson described it in a firm commercial? Like eating a tub of ice cream but spreading out the calories over four weeks." ([03:10])
Notable Quote
Tracy Alloway [03:16]: “It’s still 600 calories. Right. That’s the issue.”
2. What Actually Is “Buy Now, Pay Later”?: Shifting Business Models
- Julie Morgan explains that the original idea—zero interest, four-part payments—is now a small minority of transactions ([05:56]).
- For companies like Affirm, only 20% of business is true “pay-in-four”; most activity is now point-of-sale loans or installment loans, often with interest rates from 10–30% ([06:45]).
- The industry’s framing of BNPL as benign, non-loan products soothed both regulators and the public, but the reality is now much closer to traditional consumer lending ([07:56]).
Notable Quote
Julie Morgan [07:56]: “They’ve kind of kept this marketing that I think was really appealing to consumers and that sort of soothed regulators that these products were fairly low risk and then started shifting that into these products that look very different.”
3. Data Blindspots: Tracking, Reporting, and Consumer Debt
- Official BNPL data is patchy; the CFPB can order transaction-level disclosures, but there is no regular reporting stream ([08:42]).
- FICO has announced plans to incorporate BNPL into credit scoring, but BNPL firms are resisting, concerned about consumer impacts and how data will be used ([10:17]).
- Most research relies on company reports or consumer surveys, sometimes blurring distinctions between true installment loans and “pay-in-four” plans.
Notable Quote
Julie Morgan [09:46]: “What we have right now is kind of snapshots in time... It really inhibits our ability to get at: Are you using pay-in-four? Are you paying interest and all those things?”
4. Who Uses BNPL — and What For?
- Contrary to early stereotypes (financing luxury goods or clothing), BNPL usage has rapidly shifted to cover essentials like groceries, education, and medical costs ([12:21]).
- Between 14-25% of users now use BNPL for groceries; its use for medical and dental costs has overtaken spending on luxury or entertainment items ([12:21]).
Notable Quote
Julie Morgan [12:21]: “We saw that wasn’t true... People were using Buy Now Pay Later for things like groceries and education costs.”
5. Social & Economic Risks: Is BNPL a Problem?
- The podcast tackles whether upticks in BNPL for essentials signal trouble, or just new flexibility in payment tools ([15:09]).
- Julie Morgan warns of a “silent financial crisis” for many American families—BNPL products conceal growing personal financial distress, especially as safety nets recede and basic expenses increase ([15:40]).
- Regulatory enforcement has lagged, with recent administrations deprioritizing BNPL oversight ([18:56]).
Notable Quotes
Julie Morgan [15:40]: “It’s relevant to the kind of like what I think of as like a silent financial crisis that’s happening for the vast majority of families in the United States.”
Julie Morgan [19:17]: “CFPB’s initial approach on regulation here was to really just say...you’ve got to follow some of the fundamental basics that apply to the product you are. Right. And so that was really meant to help people with some of the real kind of basic consumer protections...”
6. The Business Case: Why Retailers Love BNPL
- For retailers, BNPL increases average basket sizes (value per purchase) by roughly 10%, and up to 80% more transaction volume, justifying higher fees than credit cards ([21:33]).
- Retailers also value the consumer data BNPL companies gather, using it to drive further sales—raising additional privacy and transparency questions ([22:40]).
Notable Quote
Julie Morgan [22:40]: “A company that has a lot of information about what I like to buy and a lot of information about how much money I have to do it has, like, a pretty potent set of data to help drive those purchases.”
7. Hidden Consumer Costs and Complicated Choices
- The multiplicity of BNPL products, providers, and terms makes it hard—even for researchers—to compare costs to traditional credit card debt or judge the total cost to consumers ([23:41]).
Notable Quote
Julie Morgan [24:06]: “It’s difficult for us to understand from a research perspective. It’s even more difficult for a consumer...”
8. The Opaque World of Credit Scores & Machine Learning
- FICO’s inclusion of BNPL remains contentious; BNPL firms claim to want safeguards against unfair penalization, but may also seek to avoid negative scoring ([24:59]–[26:17]).
- Julie warns that both medical and student debts on credit reports can be inaccurate or non-predictive, mainly serving as leverage for debt collectors ([27:06]).
- The rise of AI-powered credit underwriting brings potential for both innovation and for embedded bias and lack of transparency ([29:51]).
Notable Quote
Julie Morgan [30:12]: “What I think is most important...those models are completely opaque. And companies often, when they’re faced with regulatory scrutiny, say, kind of like the AI did it. Right. As though the people at the companies are not responsible...”
9. Macro Outlook: BNPL and the Hidden Safety Net
- The episode closes with reflection about the role of BNPL and other new credit tools in obscuring the true cost-of-living crisis, especially as official metrics (GDP, unemployment) look favorable ([32:04]).
- Morgan emphasizes we must not focus solely on individual products, but ask whether letting consumer debt fill policy gaps is really wise ([32:04]).
Notable Quote
Julie Morgan [32:04]: “We’re sitting here talking about, like, turning on the spigot for these kind of like new and interesting types of debt to help people handle really basic expenses. That seems like a problem. We should not be in an emergency situation. And yet we are.”
Important Timestamps
- 01:26 — Tracy’s admission of compulsive online shopping and the rise of BNPL offers
- 02:08–03:20 — Joe and Tracy break down the core BNPL model (“O% interest, but...”) and compare to “spreading out the calories”
- 05:56–07:45 — Julie explains how BNPL’s model and use have evolved, debunking early narratives
- 09:46–10:17 — The lack of good data about who borrows, for what—credit reporting and FICO controversy
- 12:21 — Real use-cases: groceries and medical costs now topping BNPL spending categories
- 15:40 — Julie reframes BNPL as a symptom (not a cause) of household financial stress
- 21:33–22:40 — Retailers’ motivations: Increased basket size, data, and targeted sales
- 24:59–27:49 — BNPL’s thorny impact on credit scores and the inclusion/exclusion battles (“junk data” and coercion in medical debt)
- 29:51–31:26 — Concerns about AI-powered credit scoring, bias, and accountability
- 32:04 — The big-picture danger: Consumer credit as a substitute for sound social policy
Tone and Memorable Moments
- The conversation is candid and witty—Tracy’s “ice cream” metaphor ([03:16]), Joe’s persistent questions about why everyone doesn’t use BNPL ([02:08]), and playful banter about their own shopping habits and personal finance.
- Tracy muses: “BNPL—it always reminds me of, like, it sounds like BNP Paribas’ Italian subsidiary or something.” ([34:03])
- Joe on changing perceptions: “If there’s this other rapidly growing source, and it’s pretty crucial for keeping headline figures of consumption or GDP, my sense is like, yeah, it’s not that huge yet, but it’s definitely not nothing.” ([35:56])
Conclusion
The Odd Lots episode brings nuance—and some warning bells—to the BNPL boom. While initially billed as a simple, handy payment tool, BNPL has ballooned into a complex, sometimes risky segment of the debt market. The lack of transparent data, shifting business models, and regulatory blindspots raise questions, especially as more Americans now use these tools to cover essentials amid sluggish wage growth and receding social protections. The big takeaways: BNPL is no longer just for “treating yourself” and is now central to millions’ financial lives—and, crucially, to the way consumer debt interfaces with policy and economic measurement.
For a deeper dive:
- Full transcript and further discussion at Bloomberg Odd Lots
- Join the ongoing conversation in their Discord: Discord.gg/oddlots