On the eve of the COVID-19 pandemic, large banks were jolted by the sudden rise of a new credit alternative. That 2019, buy now, pay later option from specialized providers like Klarna, Affirm and AfterPay took off with cash-strapped consumers. BNPL sought to compete with the multi-trillion-dollar credit card industry, where banks issuing plastic fuel the workhorse of American credit. Wall Street’s dominance of consumer credit since the early days of metal charge plates faced a revenue-draining, potentially existential threat.
“Banks were blind-sided by the unexpectedly rapid rise of BNPL,” said Dean Sheaffer, a former banking industry credit card executive who is now the chief operating officer of Roam, a financial technology firm focused on payments for the travel industry. The pay later alternative“gained traction much more quickly than many expected.” Now, he said, financial institutions “are worried enough to make substantial investments in people, systems, compliance, marketing and much more to respond to a clear and present threat.”
Banks’ strategy was to act like BNPL. Specifically, allow millions of holders of traditional credit cards to use them to pay for goods or services in a series of fixed monthly installments at no interest, instead of revolving an interest-bearing balance or paying in full each month.
So far, the plan is working.
A forthcoming PYMNTS Intelligence report (Jan. 2) shows that when it comes to taking care of the bill for certain purchases, consumers are turning to fixed installments on general-purpose credit cards faster than to BNPL. Over three months including November, just over 3 in 10 U.S. adult consumers (32%) used card installments for at least one type of purchase. That compares to a much lower 23% during the three months through last April. BNPL usage actually slipped during those time frames, to 14% from 15%. Purchases for travel or vacations, concert tickets or other events, or home services like kitchen remodeling are particularly likely to garner card installment usage.
There’s additional recent evidence that card installments are fighting back — and winning. This Black Friday, 31% of shoppers opted to pay via card installments, about the same share as last year, PYMNTS Intelligence data shows. But 29% of online shoppers used that method, up from 26% a year ago. Consumers living paycheck to paycheck and struggling to pay their monthly bills flocked to the method. Nearly 6 in 10 (58%) used card installments for their online and in-store purchases, up from 49% last year. BNPL use barely rose, to just under 12% of all purchases.
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The Blind Side
Estimated by PYMNTS Intelligence earlier this year to total $175 billion, the buy now, pay later market in the United States is a drop in the bucket compared to the credit card industry, where balances owed topped $1.2 trillion in the third quarter of 2025, Federal Reserve data show. Still, it’s BNPL’s explosive growth, from just $2 billion in 2019, that keeps card-issuing banks on edge, especially during year-end holiday shopping season.
In retrospect, banks could have anticipated the mass market for Pay Later alternatives. Consumer credit after the Great Recession of 2008, the worst economic downturn since the Great Depression, shrank considerably. One academic study using bank and Federal Reserve data shows that average credit card limits were slashed by roughly 40%. Subprime borrowers saw average credit line cuts more than 20% larger than those for prime borrowers. In the hangover that followed, millions of Americans were starved for credit.
Enter BNPL. Shoppers use it to buy and take home a purchase at the point of sale, paying a chunk upfront and making equal payments over time, typically “Pay in 4” plans due every two weeks. No credit check or credit card required. The instant credit is interest-free if payments are made on time.
Klarna’s BNPL product made inroads in the United States over the mid‑to‑late 2010s, then took off around 2019–2021 as it partnered and expanded ties with major U.S. retailers like Nike, Sephora and H&M to ride the pandemic‑driven eCommerce surge. In 2019, more than 190,00 global merchants offered shoppers its credit product, and the Swedish company said it was adding 6 million new U.S. consumers a year. Its annual report for that year called the U.S. one of its main growth markets.
“Banks were blindsided by how hungry the market was” for BNPL, said Susan W. Green, a former Bank of America executive focused on credit cards and now an independent financial services consultant.
Stealing a Page
American Express sprang into action. Its “Plan It” product launched in the United States in October 2020 as a way for eligible cardholders to split qualifying purchases or portions of their statement balance into fixed monthly installments over three or more months. The pitch, unusual for a company that traditionally required its cardholders to pay their balances in full each month: Those cardholders now had a flexible tool for large or unexpected expenses without needing external BNPL providers.” But unlike BNPL, Plan It charges a monthly plan fee. The fee is tallied as a percentage of the pay-later item bought, up to 1.33% of its cost. That makes it look more like a credit card. A $5,000 sofa financed over six months costs $249.60 in fees — and over 18 months, $753.84 in fees.
Likewise, that year JPMorgan Chase introduced its own buy now, pay later-style feature, My Chase Plan, for consumers holding some of its cards. For a set monthly fee, now 1.72% of the purchase price to be split, customers can split purchases of $100 or more into monthly installments. The bank also offers My Chase Loan, through which customers can take out a personal loan against their credit-card account for a lower interest rate than they would pay on card purchases.
A rude awakening came in 2021, when the Kansas City branch of the Federal Reserve published a widely read study on the nascent BNPL industry. Citing data from McKinsey that banks were losing between $8 billion and $10 billion in revenue a year to FinTechs offering BNPL products, the Fed paper said that “BNPL products have the potential to replace credit card payments, cutting into profits for providers of credit card services.”
“Once banks recognized BNPL as a legitimate payment choice, not a replacement, but an alternative, the focus shifted to adapting existing products,” said Patricia Partelow, a managing director of Financial Services Consulting at EY. The challenge, she added was visibility. Unlike BNPL providers who clearly present options upfront at checkout, banks often buy their credit card installment features in the fine print of online and paper user agreements. “That difference in timing and transparency gave BNPL a strong edge with merchants and consumers,” Partelow said.
Still, card-issuing banks are leveraging a built-in advantage. They don’t require time-consuming and costly agreements to integrate merchants. That bypass, along with the existing rewards and benefits cards offer, “positions issuers well to compete without eliminating BNPL’s appeal among higher earners,” Partelow added.
Sheaffer called banks’ efforts to market card installment plans “moderately effective.” He predicts that the continued growth of credit card installments will resonate with older consumers holding established card accounts for which the paying by installment feature is turned on. A less certain bet for banks is Block’s CashApp digital finance platform finds that credit cards have an “ick” factor with that generational cohort, with more than half believing BNPL does a better job of helping them manage their personal finances.
