Investing in Buy Now, Pay Later (BNPL) Stocks

Understanding buy now, pay later

Buy now, pay later (BNPL) are short-term loans provided by financial technology companies to customers to make purchases from participating retailers that they pay off in installments. Most BNPL loans typically have the following features:

• Fixed payments: The borrower will typically make a small down payment and then make fixed installment payments to pay off the remaining balance, usually over four weeks (i.e., Pay in 4).
• Typically, no fees to the borrower: BNPL loans don't charge borrowers interest or additional fees if the borrower pays the loan over the stated term (usually over four weeks). However, they do charge interest if the borrower opts for an extended payment plan and late fees if they don't make timely payments.
• Merchants pay the fee: BNPL companies make money by charging the merchant a fee called a merchant discount rate to help them complete a transaction. Merchants are willing to pay this fee to facilitate a BNPL transaction because it enables them to increase sales.

While providing BNPL loans can be a lucrative and growing source of income for financial technology companies, they are taking on the risk that the borrower won't repay the loan on time. The default risk would increase during a recession when more people lose their jobs and can't afford to make payments. However, one way some BNPL companies are reducing their default risk is by using artificial intelligence (AI) instead of credit scores in underwriting loans. It is often a better predictor of a borrower's potential to default on the loan.

1. Affirm Holdings

Affirm Holdings (NASDAQ:AFRM) makes financial products that help businesses grow sales while enabling consumers to spend and save money responsibly. It's a leader in providing BNPL loans.

The company offers borrowers convenient and transparent repayment options. Unlike many rivals, Affirm does not charge hidden or late fees. Meanwhile, it doesn't charge interest as long as borrowers pay in four installments (down payment plus as many as three fixed monthly payments). If consumers opt for an extended payment plan, it charges simple interest instead of compound interest.

Affirm Holdings makes money in several different ways:

• Merchant discount rate: It earns revenue from the merchant by helping them facilitate a transaction.
• Interest: While loans paid off in four installments are interest-free, the company earns simple interest on loans with extended repayment plans.
• Interchange fees: It earns a fee when consumers use its virtual credit card on established card networks.
• Loan sales: Affirm will sell a portion of the loans it originates to third parties and recognize a gain (or loss) on the sale.
• Loan servicing revenue: It earns a fee for servicing loans sold to third-party investors.

In 2025, Affirm had more than 22 million customers. It generated more than $33 billion in gross merchandise value (GMV) through the 12-month period ending in August 2025.

2. Sezzle

Sezzle is a rapidly growing BNPL company. Its total revenue grew more than 70% in 2024. The company expects its total revenue to surge another 60% to 65% in 2025. It's also delivering blistering earnings growth (more than 80% expected in 2025).

The company's focus on financial inclusion is a big factor fueling its robust growth. It provides credit to younger customers who typically face challenges with traditional credit options like credit cards. Sezzle enables them to build credit through its Sezzle Up program. It's the first BNPL platform in North America that offers credit reporting to the major credit bureaus.

Despite its rapid growth, Sezzle is still a small player in the BNPL market. It had fewer than 2.9 million active customers and a $927 million quarterly GMV run-rate as of mid-2025. That gives the company a long growth runway ahead.

3. PayPal Holdings

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