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When Nigel Morris tells you he\u2019s worried about the economy, you listen. As industry observers know, Morris co-founded Capital One and pioneered lending to subprime borrowers, building an empire on understanding exactly how much financial stress the average American can handle. Now, as an early investor in Klarna<\/a> and other buy-now-pay-later companies like Aplazo<\/a> in Mexico, he\u2019s watching something that makes him deeply uncomfortable.<\/p>\n \u201cTo see that people are using [BNPL services] to buy something as basic and fundamental as groceries,\u201d Morris told me on stage at Web Summit<\/a> in Lisbon this week, \u201cI think is a pretty clear indication that a lot of people are struggling.\u201d<\/p>\n The statistics back up his unease. Buy-now-pay-later services have exploded to 91.5 million users in the United States, according to the financial services firm Empower<\/a>, with 25% using the services to finance their groceries as of earlier this year, according to survey data<\/a> released in late October by lending marketplace Lending Tree.<\/p>\n These aren\u2019t the discretionary purchases \u2014 the designer bags and latest Apple headphones that BNPL was marketed for originally. Borrowers aren\u2019t paying it back, either. According to Lending Tree, default rates are accelerating: 42% of BNPL users made at least one late payment in 2025, up from 39% in 2024 and 34% in 2023.<\/p>\n Storm clouds on the horizon<\/strong><\/p>\n This isn\u2019t just a consumer finance story; it\u2019s a canary in the coal mine for the entire venture-backed fintech ecosystem and beyond. It points to what could develop into a serious problem \u2014 one that echoes the warning signs that preceded the 2008 financial meltdown except for one thing: it\u2019s largely invisible.<\/p>\n Most BNPL loans aren\u2019t reported to credit bureaus, creating what regulators call \u201cphantom debt.\u201d That means other lenders can\u2019t see when someone has taken out five different BNPL loans across multiple platforms. The credit system is flying blind.<\/p>\n Techcrunch event<\/p>\n \n\t\t\t\t\t\t\t\t\tSan Francisco<\/span> \u201cIn a world where, if I\u2019m a buy-now-pay-later provider, and I\u2019m not checking bureau data, I\u2019m not feeding bureau data, I am oblivious to the fact that Nigel may have taken out 10 of these things in the last week,\u201d Morris explained. \u201c[That\u2019s] absolutely true.\u201d<\/p>\n The numbers that are available are both ugly and dated. Consumer Financial Protection Bureau data published in January of this year \u2014 after the agency issued market monitoring orders to major BNPL providers including Affirm, Afterpay, and Klarna \u2014 showed that roughly 63% of borrowers originated multiple simultaneous loans at some point during the year, and 33% took out loans from multiple BNPL lenders.<\/p>\n The data also revealed that in 2022, one-fifth of consumers with a credit record financed at least one purchase with a BNPL loan, up from 17.6% in 2021; about 20% of borrowers were heavy users originating more than one BNPL loan on average each month, an increase from 18% in 2021; and the average number of new loans originated per borrower increased from 8.5 to 9.5.<\/p>\n The borrower profile is concerning: as of 2022, nearly two-thirds had lower credit scores, with subprime or deep subprime applicants being approved 78% of the time.<\/p>\n To be clear, BNPL isn\u2019t yet a systemic threat on the scale of the 2008 mortgage crisis. The total market is measured in hundreds of billions, not trillions. But the lack of visibility into this debt \u2014 combined with its concentration among already-stressed borrowers \u2014 is worth watching far more carefully.<\/p>\n Indeed, given that the economy is worse now than three years ago for many subprime populations \u2014 particularly in auto lending<\/a> \u2014 these numbers are likely higher now. Recent wage growth has been positive<\/a>, but the cumulative effect of 2021-2023 inflation hasn\u2019t been fully recovered, and key stress indicators like auto delinquencies and long-term unemployment continue to show deterioration, according to USAFacts, a nonpartisan data initiative.<\/p>\n As for why the data isn\u2019t more recent, thank regulatory upheaval. Under the Biden administration, the CFPB tried to treat BNPL transactions like credit card purchases, bringing them under Truth in Lending Act protections.<\/p>\n The Trump administration reversed course. In early May, the CFPB said it would not prioritize<\/a> enforcement of that rule. Days later, CFPB acting director Russell T. Vought rescinded 67<\/a> interpretive rules, policy statements, and advisory opinions dating back to 2011, including the BNPL rule. The agency said the regulations provided \u201clittle benefit to consumers\u201d and placed a \u201csubstantial burden\u201d on regulated entities. (Translation: BNPL companies lobbied successfully.)<\/p>\n In fact, soon after, the CFPB released a new report with a surprisingly different message<\/a>. Focusing only on first-time borrowers, the agency said customers with subprime or no credit repaid their BNPL loans 98% of the time, and that there was no evidence that BNPL access causes debt stress.<\/p>\n The discrepancy between this rosy picture and the 42% late payment rate reveals the data gap at the heart of the problem: We currently don\u2019t have good visibility into what happens to borrowers over time, especially those juggling multiple BNPL accounts. The optimistic report looked at first-time users; the concerning data comes from the entire user base.<\/p>\n New York in May imposed licensing requirements<\/a> on BNPL companies to fill the void. But state-by-state regulation creates a patchwork that sophisticated financial companies can easily navigate around.<\/p>\n Asked if he sees parallels between this moment and 2008, Morris \u2014 who has kept his finger on the pulse of all things financial as a fintech investor for the last 18 years \u2014 was careful not to overstate the comparison.<\/p>\n \u201cSo I think it is a real issue,\u201d he said of the economy, choosing his words deliberately. \u201cIf you take a half step back and we look at the U.S. consumer at the moment, and we have a number of businesses that are in and around lending to this consumer \u2014 so far, so good. Delinquency is not rising yet. Charge-offs are not rising yet. But there\u2019s clearly storm clouds on the horizon.\u201d<\/p>\n He pointed to unemployment hitting 4.3%, its highest level in almost four years. He cited the \u201ctumult around immigration and around tariffs and around the recent government shutdown.\u201d Small and medium businesses \u201care very loath to invest. People have pulled back dramatically in the last nine months given all that noise.\u201d<\/p>\n Also in the mix is the end of the student loan payment moratorium \u2014 \u201cthe largest asset class outside of mortgage,\u201d Morris noted. Roughly 5.3 million borrowers are in default and another 4.3 million are in late-stage delinquency, according to a September Congressional Research Service analysis<\/a>.<\/p>\n Morris is careful to note that the current situation isn\u2019t yet a crisis. \u201cDelinquency is not rising yet. Charge-offs are not rising yet,\u201d he acknowledged. But the combination of factors \u2014 phantom debt, rising unemployment, the end of student loan forbearance, and regulatory rollback \u2014 creates conditions where problems could accelerate quickly.<\/p>\n The big concern isn\u2019t BNPL debt alone \u2014 it\u2019s the cascading effects. The Federal Reserve Bank of Richmond has warned that BNPL\u2019s potential systemic risk comes from its \u201cspillover effects<\/a> onto other consumer credit products.\u201d In other words, BNPL stress is an early indicator of broader consumer financial distress.<\/p>\n What\u2019s important to understand is that because BNPL loans are typically smaller than credit card balances or auto loans, borrowers tend to prioritize keeping them current, which means other, larger debts start to default first. Someone might have a perfect record on their four BNPL accounts while their credit card, car loan, and student loan all go delinquent.<\/p>\n Consumer lending takes \u2018the mom test\u2019<\/strong><\/p>\n Morris has lived both sides of this equation. He revolutionized subprime lending at Capital One. Then he backed fintech startups trying to disrupt the old guard, including Klarna, which went public earlier this year and currently boasts a $13.5 billion market cap, even though it\u2019s barely profitable (including because it absorbs all the default risk of borrowers).<\/p>\n Given those years of insights, I asked him on stage: \u201cWhere is the line between catering to and helping an underbanked population and enabling people to dig a hole for themselves? Have these companies crossed it?\u201d<\/p>\n Morris seemed genuinely to wrestle with the question, telling the investor attendees who\u2019d gathered to learn from the conversation that it\u2019s a \u201cvery, very difficult question to answer. I think that the role of the moral compass in consumer lending is very, very important.\u201d<\/p>\n He described \u201cthe mom test\u201d from his Capital One days: \u201cIf this idea was presented to your mother and she called you up and said, \u2018Son, should I take this product?\u2019 And if you can\u2019t unequivocally say yes, it\u2019s a good product, you should not be offering it to the American people.\u201d<\/p>\n But again, the problem is that BNPL companies aren\u2019t transparent about their returns, and most firms don\u2019t report to credit bureaus, which \u2014 in addition to making visibility into the them challenging \u2014 means borrowers can\u2019t use successful repayment to access lower-cost credit. <\/p>\n That\u2019s part of the business model, by the way. \u201cSome of these buy-now-pay-later companies don\u2019t want that to happen\u201d \u2014 meaning for their customers to build up their credit scores \u2014 \u201cbecause they don\u2019t want the consumer to graduate,\u201d Morris said.<\/p>\n While Morris and I were discussing these ethical questions, the invisible problem he\u2019s worried about is getting exponentially bigger, with BNPL bleeding into every corner of the financial system, and the borders between this unregulated lending and traditional banking disappearing entirely.<\/p>\n Klarna has been operating as a licensed bank in Europe since 2017. Affirm now has nearly 2 million debit cardholders who can finance purchases in physical stores, bringing invisible installment debt into brick-and-mortar retail. Both companies are integrated into Apple Pay and Google Pay, making BNPL as frictionless as tapping your phone.<\/p>\n Not to be left behind, traditional finance is racing toward BNPL now, too. PayPal said it processed $33 billion<\/a> in BNPL spending in 2024, growing at 20% annually. Major banks now let customers split purchases after the fact. Through deals with payment processors like Adyen, JPMorgan Payments, and Stripe, Klarna\u2019s services now reach millions of merchants automatically. What started as a niche checkout option is becoming embedded financial infrastructure.<\/p>\n Morris sees this shift happening everywhere. \u201cWhen I talk to some of these software companies that are now embedding payments, lending and insurance,\u201d he told me, \u201cand you say, \u2018Okay, five years from now, where are you going to make your money?\u2019\u201d the answer surprises even veteran investors like him. \u201cThey say, \u2018You know what, I think I\u2019m going to make more money in embedded finance than I am in my core software.\u201d <\/p>\n Continued Morris: \u201cIt starts off as a nice little add-on, but when the powers of the marketplace drive down the returns in the core business, it\u2019s often these financing businesses that have the greatest longevity and market power.\u201d <\/p>\n Put another way, entire industries are quietly transforming from whatever they sold originally into financial services companies, with all the associated risks but often without the associated oversight.<\/p>\n A second bubble?<\/strong><\/p>\n But the real danger lies in what\u2019s coming next, which is business-to-business BNPL. The trade credit market, where suppliers lend to companies buying their products, represents $4.9 trillion in payables among American firms alone, per data cited by The Economist. That\u2019s four times larger than the entire U.S. credit card market. And BNPL companies, having conquered consumer lending, are now moving aggressively into this space.<\/p>\n When small businesses gain access to BNPL, their spending increases by an average of 40%, according to B2B BNPL providers like Hokodo<\/a>. It sounds great for commerce until you realize what it means, which is more debt, accumulating faster, with even less visibility than more traditional consumer lending. <\/p>\n Indeed, the debt itself is being packaged and sold at a pace that should alarm anyone who remembers 2008. Elliott Advisors last year purchased Klarna\u2019s $39 billion British loan portfolio<\/a>. In 2023, KKR agreed to buy up to $44 billion in BNPL debt<\/a> from PayPal. As of June of this year, Affirm had issued around $12 billion<\/a> in asset-backed securities. <\/p>\n This is the subprime mortgage playbook playing out in real time: slice up risky consumer debt, sell it to investors who believe they understand the risk profile, and create layers of financial engineering that obscure where the actual exposure lies. Except this time, a lot of that underlying debt isn\u2019t being reported to credit bureaus. <\/p>\n My own takeaway from my sit-down with Morris \u2014 and my research leading into it \u2014 is that we\u2019re watching two potential bubbles right now, but only one is getting the attention it deserves, at least in Silicon Valley, certainly.<\/p>\n The AI bubble<\/a> has been dominating headlines<\/a> in recent weeks, as a growing number or people question the $100 billion data centers, sky-high valuations, and jaw-dropping venture rounds we\u2019re seeing.<\/p>\n The BNPL situation is different but no less worth watching. It\u2019s invisible, lightly regulated, and affecting the most vulnerable Americans \u2014 which is roughly 40% of them<\/a>. It\u2019s people financing their meals in four installments and recent graduates juggling student loan payments with three different BNPL accounts. <\/p>\n The champagne is flowing so freely in certain sectors of the economy that it makes this very big problem easy to overlook, but when consumer debt becomes unsustainable, there\u2019s going to be a lot of pain across the board, and VCs and their venture-backed businesses will be among those to feel it.<\/p>\n As Morris watches his BNPL investments from the other side of the table, he seems to understand these warning signs<\/a> better than most. He\u2019s not predicting a crash \u2014 he\u2019s urging vigilance. The question is whether regulators will do anything about it before it\u2019s too late.<\/p>\n<\/div>\n
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\n\t\t\t\t\t\t\t\t\t\t\t\t\tOctober 13-15, 2026<\/span>\n\t\t\t\t\t\t\t<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/div>\n