From 1960s Tech to 2025 Transactions: The Infrastructure Leap Powering BNPL’s Boom

As this week’s “Pay Later Unpacked” virtual event draws to a close, we’ve heard a lot from the consumer-facing side of the house, as consumers are defining the use cases and payment preferences that drive this new format.

We’ve heard a lot about how buy now, pay later (BNPL) services have fundamentally transformed consumer lending by underwriting individual transactions rather than consumer credit profiles themselves.

But as the week closes out, let’s give payment processors their due. The BNPL revolution wouldn’t be possible without modern payment processing infrastructure that bypasses decades-old financial systems.

According to Todd Pollak, chief revenue officer at Marqeta, the payment processing landscape has required significant innovation to accommodate the rapid growth of BNPL services.

“Most of the technology and infrastructure for payments that merchants use is built on systems and structures that were put in place in the 1960s and ’70s,” Pollak said in a recent interview. “Even the networks and their operating procedures are still based on code that was developed almost 50, 60 years ago.”

This legacy infrastructure wasn’t designed to handle the unique requirements of BNPL transactions, creating barriers to adoption. Marqeta has positioned itself as a critical enabler in this space by developing solutions that work around these limitations.

“One of the amazing innovations that Marqeta brings to the market that’s enabled the growth of BNPL is that we figured out creative ways to manage it and overcome some of the limitations that it has in order to really drive penetration at merchants,” Pollak said. “Without a Marqeta, BNPL probably doesn’t exist in the form or the size and scale that you see it at today.”

The growth has been substantial, with Pollak noting that the BNPL industry now represents about “$18 billion in loans” developed over just “five to 10 years” as the payment method “exploded in popularity.” Pollak said he sees continued opportunity for both merchants and BNPL providers, with Marqeta “at the center of that in terms of powering the industry.”

Traditional Finance and BNPL Convergence

At that center, the line between traditional lending and BNPL continues to blur as established financial institutions seek to enter the space. This convergence presents significant technological challenges, according to Pollak.

“If you are on legacy infrastructure that you’ve been processing payments on for your entire history, you are now trying to figure out: ‘How do you get access to wallets?’” Pollak said, noting that Apple Pay and Google Pay, for example, are not set up for BNPL transactions tokenized in the cloud. This technological gap has established financial institutions looking for solutions.

“Legacy providers, whether that be traditional banks, traditional credit providers, issuers coming to Marqeta and probably others, are asking questions about how they would get access to real-time capabilities,” Pollak said. “They want real-time APIs (application programming interfaces) so that they can participate in the new economy.”

At the heart of Marqeta’s strategy is removing friction for merchants, and those frictions are identified by Pollak as “truly the choke point in BNPL.” The complex web of systems integration presents significant challenges.

“You need access to all the systems on the merchant side in order to complete that transaction and fulfill that order,” he said. “So that means inventory management systems, being able to pass the order value, being able to pass the shipping address, making sure that order gets fulfilled, and then there are returns. We focus a lot on that merchant experience and eliminating that friction.”

Navigating Regulatory Uncertainty

The regulatory landscape for BNPL remains in flux, creating challenges for providers. “Government is always behind the innovation curve,” Pollak said. “Risk and compliance and regulation tends to follow these very, very fast-growing technology companies who have disrupted a space.”

Despite the uncertainty, Pollak believes the industry is adapting. “We’ve seen some of what I will call gray area regulations around, is this true credit? Is it true lending? What does that mean for consumers and how you have to protect them? But I do think that the industry has adapted.”

For BNPL providers, scaling operations while maintaining effective risk management presents significant challenges. Marqeta addresses this by centralizing certain functions across the ecosystem.

“The cost of scaling your regulatory risk compliance operations inside of your company is a significant cost,” Pollak said. “As a central operator servicing all BNPL providers, we are a full program manager, and we are investing in our own risk and compliance capabilities.”

This approach allows BNPL providers to focus on their core strengths, which Pollak said are advancing underwriting, upgrading the merchant value proposition and upgrading the consumer value proposition.

Future of Embedded Finance

Looking ahead, Pollak sees BNPL as just one aspect of the broader trend toward embedded finance, with innovations continuing to expand financial inclusion.

“[There are] really, really clever companies that are figuring out how to take advantage of all these new capabilities that exist with modern providers who are doing things in real time through APIs in the cloud that enable them to think differently about how they assess risk, how they manage risk and how they provide capital to folks that frankly have very thin file that a bank would never, never consider doing,” Pollak said.

“Our job, as we see it, is to provide the tools and the infrastructure, but we are reliant on the innovators that are out there to take the capabilities that we’ve put together and be thoughtful about how they bring those to bear for consumers,” he said.