Burrito now, pay later

Summary

Today, Explained: "Burrito Now, Pay Later" Episode Summary

Release Date: June 25, 2025
Hosts: Noel King and Kyla Scanlon
Guest: Akilah K. Johnson, Financial Times Journalist

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Introduction: The Rise of Buy Now, Pay Later (BNPL)

In this episode of Today, Explained, hosts Noel King and Kyla Scanlon delve into the burgeoning trend of Buy Now, Pay Later (BNPL) services and their recent integration into traditional credit scoring systems. The discussion is anchored by insights from Akilah K. Johnson, a consumer finance journalist at the Financial Times.

Noel King opens the conversation by highlighting a significant shift in credit reporting:

"There is one company that 90% of US lenders check with before they decide whether to give you a loan for a house or for a car. It's a credit rating agency called FICO. Now, this week, FICO announced that when it calculates your credit score, it's going to include, for the first time ever, your Buy Now Pay Later purchases."
(00:02)

This move marks a pivotal change in how consumer debt is assessed, particularly as BNPL services become ubiquitous.

---

Understanding Buy Now, Pay Later (BNPL)

Akilah K. Johnson elucidates the mechanics and business model of BNPL:

"Buy Now, Pay Later or BNPL is basically a type of lending that's provided by companies that call themselves fintech... they allow shoppers and consumers to split their purchases into installments, and largely these installments are interest-free."
(02:18)

However, she points out the opacity in their revenue streams:

"So it's not entirely transparent. Each of them has a different sort of Breakdown of how they make money. But essentially they take a fee from the merchants."
(03:05)

Merchants favor BNPL as it boosts sales, but the real cost often falls on consumers through various fees.

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Consumer Behavior and Overextension

The podcast features anecdotes illustrating consumer reliance on BNPL. Kyla Scanlon shares her extensive use of Klarna:

"I have spent $32,196.23 on a firm in Klarna since 2022... paying $43 today as opposed to paying $170 today full of makeup."
(03:28)

This behavior underscores a broader issue of impulse spending facilitated by BNPL's convenience.

Akilah further warns:

"Some of them also make money from late repayment fees... they're basically penalties that they take from consumers who don't pay on time."
(04:07)

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The Dark Side: Debt Traps and Credit Implications

A critical turning point in the episode is the discussion on the risks of BNPL. Noel King poses a thought-provoking scenario:

"If you buy the burrito and then you decide you're going to default on it, what happens?"
(05:02)

Akilah responds by explaining the consequences of defaulting: late fees, potential blacklisting by lenders, and the negative impact on credit scores—especially now that FICO includes BNPL in credit assessments:

"The sector has come under pressure from consumer protection groups and there's also been a rise in defaults recently as people fear that the risks of a US recession are becoming higher."
(06:45)

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Regulatory Landscape and Economic Implications

The lack of regulation in the BNPL sector emerges as a significant concern. Akilah highlights:

"The industry is so new that it's not regulated as credit in the US... perhaps that's the kind of missing piece in the puzzle that makes it a potentially more dangerous tool."
(10:13)

This regulatory gap allows BNPL companies to operate with fewer safeguards compared to traditional credit services like credit cards and mortgages.

---

Generational Perspectives: Gen Z and Debt Normalization

The episode delves into how younger generations, particularly Gen Z, perceive and utilize debt. Kyla Scanlon observes:

"Debt has been so normalized for the younger generation that when they see something like BNPL, it's like, oh, this is just casual debt."
(18:33)

She connects this attitude to broader economic challenges facing Gen Z, such as student loan debt and stagnant wages, which make BNPL an attractive but potentially precarious option.

---

Psychological and Societal Factors

Kyla introduces the concept of the "poor impulse control economy," where ease of access to credit fosters impulsive spending:

"The convenience and the impulsivity that it allows for, allows for the expansion of the grift economy of a world where people are spending money on things that they don't need."
(16:20)

She argues that this trend reflects deeper societal issues, including economic instability and the erosion of traditional safety nets.

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Conclusion: Navigating the Debt Landscape

Wrapping up, the hosts and guest acknowledge the dual nature of debt as both a financial tool and a potential trap:

"Debt's not inherently a bad thing... It's all about how you use it."
(21:25)

Kyla emphasizes the need for balanced regulation to protect consumers without stifling financial innovation:

"We have to really start thinking through actual solutions to these problems because they're just not going to fix themselves. The incentives are too misaligned."
(24:46)

---

Final Thoughts

The episode serves as a comprehensive exploration of BNPL's integration into the financial system, highlighting both its conveniences and inherent risks. By incorporating expert insights and real-world examples, Today, Explained offers listeners a nuanced understanding of how BNPL is reshaping consumer behavior and credit landscapes.

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Produced by Myles Bryan and Gabrielle Burbe, Edited by Aminah Elsadi, Fact-Checked by Laura Bullard, with engineering support from Patrick Boyd and Andrea Kristin's daughter.

Transcript

[Noel King]

There is One company that 90% of US lenders check with before they decide whether to give you a loan for a house or for a car. It's a credit rating agency called fico. Now, this week, FICO announced that when it calculates your credit score, it's going to include, for the first time ever, your Buy Now Pay later purchases. Buy Now Pay Later Companies are everywhere. Klarna just partnered with Doordash. You can put a burrito on payments and if that seems unwise, well, Klarna's CEO told cnn yes, he in fact agree like why even offer that option?

[Akilah K. Johnson]

Yes, and that is unwise. I would not recommend anyone to put a burrito on pineapple later for clarity.

[Noel King]

Coming up on Today explained. Is burrito now pay Later a great deal or just another debt trap?

[Kyla Scanlon]

How much is that burrito in the window with Varna? It comes home with me.

[Noel King]

How much support for this show comes from WhatsApp? The personal chat on WhatsApp is a place where you share everything, from the mundane connections to the memories that mean everything. It's a place that can truly feel like it's your own. And WhatsApp makes sure everything stays protected from outside eyes, even theirs. No one, not even WhatsApp can see or hear your personal messages. That includes personal calls, plus any documents, photos or media that you share in your personal chat WhatsApp message privately with everyone. Visit WhatsApp.com privacy to learn more.

[Kyla Scanlon]

When you open a Corona, you hear the sounds of wherever you are a.

[Noel King]

Little differently, a little more Corona.

[Kyla Scanlon]

And you think to yourself.

[Noel King]

Why am I just listening?

[Kyla Scanlon]

Corona La Playa awaits. Relax responsibly. Corona Extra Beer imported by Crown Import, Chicago, Illinois.

[Noel King]

Okay, let's see here.

[Akilah K. Johnson]

Today, Today.

[Noel King]

Explained. Explained.

[Akilah K. Johnson]

I'm Akilah Kinhot and I'm a journalist at the Financial Times, British newspaper, and I'm now based in the US Covering consumer finance.

[Noel King]

One aspect of consumer finance that you've been covering recently is Buy Now Pay later services. What are those and how do they work?

[Akilah K. Johnson]

So Buy Now, Pay later or BNPL is basically a type of lending that's provided by companies that call themselves fintech. So financial technology. But what they really are is just they're lenders who allow shoppers and consumers to split their purchases into installments. And largely these installments are interest free, so you don't pay an interest rate on them.

[Noel King]

Wait, if they're not charging interest, how do they make money?

[Akilah K. Johnson]

Right? So it's not entirely transparent. And each of them has a different sort of Breakdown of how they make money. But essentially they take a fee from the merchants. Merchants love BNPL because it gets people to buy more stuff.

[Noel King]

You need to book a flight today. The prices is perfect, but you just paid all your bills and it's not really a good time financially. I have some options for you.

[Kyla Scanlon]

I have spent $32,196.23 on a firm in Klarna since 2022. And the big question is, what did I purchase, you know, how much better I felt about myself financially knowing that I was paying $43 today as opposed to paying $170 today full of makeup. I can't really mentally justify buying more.

[Noel King]

Makeup, but I mean, hey, it's only $43.

[Akilah K. Johnson]

And some of them also make money from late repayment fees, which they call all sorts of funny names like snooze fees or reminder fees. But yeah, they're basically penalties that they they take from consumers who don't pay on time.

[Noel King]

2025 was my year of not buying crap online. I'm taking it very seriously. I've been pretty good with. But on occasion I have seen the option to pay with Klarna, but I actually like can't remember where. Maybe Sephora. What kinds of stuff can you buy with bnpl?

[Akilah K. Johnson]

Well, so that's the thing pretty much now anything or at least a wide range of items. So, you know, people have always or you know, for a long time been able to pay in installments for big purchases like, you know, a sofa, a couch. Yeah, a couch, exactly. But now it's kind of spread to makeup, fast fashion, online clothing, that's a big one. And even doordash.

[Kyla Scanlon]

Like, are we not going to discuss the news headline that all of a sudden doordash and Klarna are going to allow you to pay for fast food in installments?

[Noel King]

So now you can get your expensive doordash sent right to your front porch. Cold, mushy doordash person probably farted on it, but now it's on a payment plan. Bad decision at the bad decision at the bad damn decision. Akilah, let's say I buy the burrito and then I decide I'm going to default on it. I'm not going to pay the $15 back. What happens?

[Akilah K. Johnson]

So if you can't repay on time and you can't sort of honor the repayment plan that you've agreed to with one of the providers, often they'll charge late repayment fees. And so if you keep doing that, it's likely they won't approve you for more loans with them. And then another kind of contentious area of this whole debate is that for a long time, defaults on binary pay later plans were not reported to credit bureaus. And so they wouldn't affect credit scoring, which had a lot of consequences, one of them being that people could stack up loans from different providers with each of the providers not knowing that the person would already have BNPL loans with others. But that's actually changing. So the sector has come under pressure from consumer protection groups and there's also been a rise in defaults recently as people fear that the risks of a US recession are becoming higher. So now actually last week, one of the largest providers of credit scoring in the US has announced that it will take into account BNPL by no pay later.

[Noel King]

My first impulse when I saw Klarna was nobody's going to do this. But I clearly was wrong. How popular is this?

[Akilah K. Johnson]

So it's increasingly popular, it's rising really fast, particularly with young people initially, but that it's also spreading beyond that demographic. And it's so popular because it's so easy. So, you know, that's the kind of fintech element. These companies have been really good at creating, like a very seamless payment flow online. So if you're shopping, you don't even have to really plan for it or think about it ahead of time. You'll just see, you'll just see a button to click on and then very easily you can, you can get that loan. And it's also popular because people want to buy a lot of stuff. Like, you know, we, we were all targeted with these ads online and we all know about the rise of influencers.

[Kyla Scanlon]

Today we're finally doing my bedroom makeover on a budget with the help of Klarna. You don't have to have all of the fancy new things to run, but if you're looking to invest in something for your running journey, Klarna is a great tool. Y' all. Don't sleep on Klarna. I just bought some new kitchen appliances and I've been obsessed.

[Noel King]

What's the weirdest thing that you've seen.

[Akilah K. Johnson]

The most probably concerning from a consumer protection perspective and from a financial stability sort of perspective is groceries. So, you know, if people start to pay, which they are, but like, you know, paying for food and very essential items with loans I think is pretty wild.

[Noel King]

Yeah, buying groceries on payments is uncomfortable to think about. So are these services more popular with people who are low income and really need them to spread the payment out?

[Akilah K. Johnson]

So we don't have a ton of data, so it's difficult to save for certain what the breakdown is in terms of the users. However, we do know that people who can get approved for these loans might not get approved for other loans or credit cards. So there is an understanding among, you know, economists and analysts that it's more subprime population than other consumer lending areas. And so what this means is that the people who are using these services to buy groceries are probably higher risk customers. And so if the economy turns, there is a higher risk of default from that population. One of the things that people are watching at the moment is unemployment, the unemployment rate. So at the moment, employment still remains strong. But, you know, that could change and that could sort of create problems for those consumers.

[Noel King]

Americans tend to accept debt with few reservations, even in a lot of cases if we can't pay it back. And there are probably a million reasons for this. But if someone says, I'm gonna give you a $30,000 credit limit, we're like, yes, I'm going to spend $30,001. So buy now, Pay later is not shockingly new. We've always had, you know, layaway at the furniture store, but Klarna and these other payment systems are everywhere now, and they're easy. Do you think this is going to lead to people racking up more debt just because they can?

[Akilah K. Johnson]

So I think there's a really interesting tension where these products have the possibility of offering flexibility and be another financial tool in people's lives, specifically people who don't easily have access to credit or funding. And so that has the potential of being great. It also has the potential of spiraling into a potentially unsustainable financial situation for these people. And I think that often we look to regulation to kind of find that right balance between consumer protection and financial freedom and kind of managing the incentive that these companies have to grow their businesses versus, you know, protecting the economy. One of the big concerns with this at the moment is that this industry is so new that it's not regulated as credit in the US So credit cards are strictly regulated. The mortgage market is strictly regulated. And there was a push to regulate Buy Now, Pay later as credit, the same way credit cards are regulated in the US that's been stripped away because of leadership changes in the cfpb, the Consumer Financial Protection Bureau installed by the new administration. So perhaps that's the kind of missing piece in the post that makes it a potentially more dangerous tool, or it might not fulfill its potential as it would if there was proportionate adequate regulation. You basically want it to be a system where it can be used as a tool. But the people who use it as a tool understand the risks that it comes with and the consequences it can have on their financial lives.

[Noel King]

Akilah Kino of the Financial Times Coming up no judgment, but are we addicted to debt? Support for Today Explained Comes from Shopify if you have a business idea or just an idea of some something you want to sell, you won't get far without the right tools. But you can start with Shopify says Shopify Shopify is the commerce platform behind millions of online stores around the world and they say 10% of all E commerce in the US from household names such as Mattel and Gymshark to brands just getting started. Their design studio lets you build an online store that matches your style. You can choose from restaurant ready made templates or you can use their helpful AI tools. Shopify says that you can create email and social media campaigns with ease and meet your customers where they're at. If you're ready to sell, you can be ready for Shopify. You can turn your big business idea into reality with Shopify on your side. You can sign up for a $1 per month trial and start selling today at shopify.com explain go to shopify.com explain shopify.com explained foreign it's impossible to find more time in the day until now. With HubSpot's suite of AI powered tools you can get more done way faster, speed up your lead generation and create attention grabbing, lead driving quota crushing campaigns in an instant which will give you more than enough time to listen to podcasts like this one. HubSpot Impossible Growth made impossibly easy. Get started [e-mail] AI avoiding your unfinished home projects because you're not sure where to start. Thumbtack knows homes so you don't have to don't know the difference between matte.

[Kyla Scanlon]

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[Noel King]

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[Kyla Scanlon]

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[Kyla Scanlon]

So I am Kyla Scanlon. I am an author and an economic content creator. So my first book in this Economy came out last year and I make videos across social media, have written for the New York Times Opinion section, Bloomberg Opinion and my main goal is to help people understand the economy so they can make better decisions about their life.

[Noel King]

You and I have never met. You do not know anything about me. But I do not like buy now, pay later. You tell me why that is, why.

[Kyla Scanlon]

You don't like it.

[Noel King]

Why am I so suspicious of buy now, pay later?

[Kyla Scanlon]

I think a lot of people are suspicious. When Klarna teamed up with DoorDash, I made a video about it. Cause I was freaked out.

[Noel King]

Huh.

[Kyla Scanlon]

This gets into something that I've written a little bit about too. The convenience contradiction where we're optimizing for this effortlessness when everything's like really easy. The less resilient that people become. And so the more fragile system is, the more anxious people are. And so you reach for even more convenience in order to soothe yourselves. I think that just encourages bad behavior. Like there's like, you know, buying a moisturizer from Sephora. You're going to use the moisturizer. It's part of a skincare routine. Like that's a little bit more commonplace. But the fact that people might be financing the quote unquote, private taxi for their burrito, like, that's just encouraging bad financial habits. Doordash is incredibly expensive. And if you have the option and the ability to go and, you know, get your food from the restaurant itself, that's something that we should be probably encouraging people to do so they don't incur those extra fees. And so I think things like that where it's encouraging people to spend more money than they have for a service that they don't necessarily need, that's when things can get really bad. And there was a lot of jokes during that Klarna DoorDash partnership announcement.

[Noel King]

It is true, ladies and gentlemen, you can now finance your DoorDash collateralized burrito obligations. I know y' all ass is not going to debt for some extra guacamole chips.

[Kyla Scanlon]

Could we have a bunch of people who are just so overextended on credit and they're ignoring their payments because there's elements of financial nihilism where we really do have a massive problem on our hands. And so I look at things like that. I view that a little bit differently than like a moisturizer from Sephora as something that could be quite bad in the future.

[Noel King]

It sounds like you were sounding a warning. What else did you say in that video to your. To your viewers?

[Kyla Scanlon]

What I talked about in that video was sort of the poor impulse control economy. Because what happens when you remove all friction from consumption is that the meal that arrives to your doorstep has no social ties to you. It requires no planning and it leaves nothing behind but packaging waste. So I talked about meme coins. I talked about sports betting and how companies can collect the data on the vices that we have. And so when everything becomes totally frictionless, like when you can order a private taxi for your burrito, that sort of behavior can stem out into things that are probably a lot worse for us, including like gambling on meme coins, gambling on a baseball game.

[Akilah K. Johnson]

And some people think that I'm crazy.

[Noel King]

Because I'm trying to make six figures.

[Kyla Scanlon]

On a two figure or less budget. On FanDuel. The biggest scam that's plaguing the community.

[Noel King]

Right now is sports betting. And mainly I'm referring to these fantasy apps.

[Akilah K. Johnson]

What I just witnessed in the last.

[Kyla Scanlon]

Leg of our Hail Mary parlay is the most disgusting, the most despicable, the.

[Akilah K. Johnson]

Most sickening thing I have ever seen in sports history.

[Kyla Scanlon]

And so that's what I worry about is that the convenience and the impulsivity that it allows for, allows for the expansion of the grift economy of a world where people are spending money on things that they don't need to and they're just totally lost in that cycle.

[Noel King]

You're a commentator, you're a public intellectual. You're also a gen zer and you talk directly to gen zers who are operating in the economy. How is your generation using bnpl?

[Kyla Scanlon]

A lot of Gen zers have had very common interactions with debt. Student loan debt is a big part of the, the life of a Gen Z, er, you know, medical bill. Anything involving a credit score, like debt has been so normalized for the younger generation that when they see something like bnpl, it's like, oh, this is, it's just casual debt.

[Noel King]

Huh?

[Kyla Scanlon]

Hi, my name is Diva and I am $107,000 in debt. And I am the affirm in Klarna girl.

[Noel King]

There's a point where you realize that the consequences of not paying alone are actually not like that bad.

[Kyla Scanlon]

And so I think for young people, they've been raised in the shadow of the 2008 crisis. You know, student loan Deb, I said so it's just sort of what they do with their money.

[Noel King]

This is interesting that debt has always been available to Gen Z. If you're an older millennial like I am, that's not really the case. You kind of remember getting your first credit card when you were like 22, but there was no Apple pay. You couldn't just pay for stuff on your phone. And it strikes me that like my nieces and nephews who are teenagers, they can do that. They have this ease with paying for stuff and taking on debt for stuff that never occurred to me would be an option when I was young.

[Kyla Scanlon]

Yeah, I mean, I think a lot of that is structural. So in 2020, their government sent out unemployment checks. I am asking Congress to amend this.

[Noel King]

Bill and increase the ridiculously low $600.

[Kyla Scanlon]

To $2,000 or $4,000 for a couple. It's the biggest ever, ever Approved in Congress. 6.2 billion. $6.2 trillion. So, you know, we used to get used to the billion. It used to be million, then it.

[Noel King]

Was billion, now it's trillion.

[Kyla Scanlon]

In 2021, the Fed had rates really close to zero. Like, we're always talking about the deficit. We're always talking about how much money the United States as a country owes. The national debt stands currently at about 3. $36.2 trillion.

[Noel King]

Moody's has lowered the United States credit.

[Kyla Scanlon]

Rating because of an increase of government debt. And so I think for everybody, they're just looking at that and they're like, well, you know, if the government owes all this money, like, surely I can have a little bit of debt too. And then credit scores have become such a core part of the American identity. It really informs a lot of how you can buy a house or, you know, if you can even get certain loans that. I think people view debt as structural to them as a person. And that's just increased. And I think it really has a lot to do with the environment that Gen Z has grown up in and the fact that these tools are so readily available and they're so easy to use.

[Noel King]

Talk to me a bit about how you think about debt. Is it dangerous?

[Kyla Scanlon]

Well, I think when you look at debt systemically, right. Debt's not inherently a bad thing like most things. It's a tool like social media. You could say it's bad, but it's a tool. It's all about how you use it. Same with debt. BNPL in itself isn't evil, especially if you can pay it all off without having to face those high interest rates. Credit cards themselves are an evil. But it's really about the system that encourages these sorts of products to be created. So, you know, real wages were stagnant for a really long time. The entry level labor force is really deteriorated. It's very tough to get a job right now if you're graduating from college. And the college wage premium has eroded quite a bit. You know, rent is high because we don't build enough housing. Groceries are up. And so I think people are just like looking at the very high prices, the impossibility of ever buying a house, you know, the struggles that they might be facing in the labor force. And it's really like, well, sure, it might be irresponsible to use BNPL to get a moisturizer from Sephora, but like, literally, what else am I going to do? Like, I don't see a solution before me. And so I think that's been the big thing with debt, is that we've used it as a tool in order to navigate some of the hairier parts about being in the United States right now.

[Noel King]

It strikes me that what you're talking about is where traditionally, like a safety net would grab somebody, right? You need a bridge between last month's paycheck and this month's first paycheck. And I think historically you might say, and I think this is a valid question, look, you can't afford the Sephora lotion right now, so why don't you just wait? And it sounds like what you're saying is that's a bit of a privileged or maybe old fashioned idea of how paying for things works, right?

[Kyla Scanlon]

And I think why don't you just wait? Ignores some of the latter issues that we're facing. Like Gen Z, younger people, honestly, millennials in some capacity are facing this really broken ladder problem where it's like, okay, sure, they could wait to buy that moisturizer, but that would require the entry level labor market to free up again. That would require wages to really speed up, that would require the housing market to normalize. And so I think a lot of people blame younger people for using debt and using bnpl. And I think you should be careful. I don't think you should be living above your means in an extravagant way. But it really is a psychological buff of sorts where people are just like, well, I don't know what else to do, so I'm going to go and buy this thing. It is an element of instant gratification, the same thing that we see in social media, but for Gen Z eaters and younger people, there isn't that stability, that expectation of stability in the traditional sense. And so I think these little small luxuries matter, like buying that moisturizer matters because it is indulgent in a certain way, but it's also a flex of agency. And an economy that doesn't feel like it's allowing you into.

[Noel King]

Does feel a little bit like there is some American ethos here that says to live is to be in debt. And we've all accepted that.

[Kyla Scanlon]

Yeah, I mean, that's kind of the only way you can get by sometimes. You know, there's that misquoted statistic about paycheck to paycheck. Like it's not 60% of Americans living paycheck to paycheck. It's, it's far lower. But I think a lot of people just feel like one wrong move and the whole thing could come tumbling out beneath you. And so we just have these issues that are outside of the realm of consumer packaged goods being delivered where it's like as many policymakers and politicians and pundits have written about, where we have to really start thinking through actual solutions to these problems because they're just not going to fix themselves. The incentives are too misaligned.

[Noel King]

Kyla Scanlon, she's the author of the book in this Economy. You can find a link in our show. Notes. Myles Bryan and Gabrielle Burbe produced today's show. Aminah Elsadi edited Laura Bullard fact checked. Patrick Boyd and Andrea, Kristin's daughter engineer. Thank you, Matt. It's Today Explained. I'm Noel. Sam.