- Buy now, pay later (BNPL) is expanding rapidly in Latin America, providing a potential consumer-welfare benefit to those typically excluded from traditional credit.
- This is particularly important in lower-income segments of the population for whom cash flow is volatile, liquidity constraints are acute, and there is a need for credit to fund essential purchases.
- But BNPL can also weaken household balance sheets when it encourages repeated small purchases and accumulated debt. Policies that ensure that debt obligations are visible and easily understood at the time of purchase can make an important difference in this regard.
Buy now, pay later (BNPL), which allows consumers to purchase goods in installments, is expanding rapidly in Latin America because it addresses a longstanding gap between consumer demand for short-term financing and the limited reach of traditional credit.
This is a positive development in that it allows consumers with lower incomes and limited credit records to make much needed purchases. But it can also lead to unmanageable debt if purchases through BNPL build up. That risk underscores the need for policies that ensure that BNPL debt obligations are visible and clearly understood by consumers at the point of sale.
The surge in the use of BNPL in Latin America comes amidst a broad payments transition in the region that has been widely documented and promoted by the Inter-American Development Bank (IDB) as a potential engine of financial inclusion if the rights safeguards are in place. It encompasses both significant promise and the need to ensure that vulnerable individuals are protected.
The Growth of Credit at the Point of Sale
An IDB report found that digital payments for in-person purchases rose from roughly 11% in 2020 to 30% in 2024, while the volume of digital transactions per 1,000 adults increased sharply across major markets during the same period. In Brazil, where instant payments infrastructure has scaled quickly, monthly transactions through Pix, an instant payments system for smartphone users, reached $5.71 billion by December 2024. Half of all those transactions were below R$39 (around $6.50), indicating that the use of digital technology is already supporting high-frequency, low-value payments on a mass scale.
BNPL has emerged within this environment as an embedded credit product that can be offered at the point of sale, often with little friction for either consumers or retailers.
BNPL and the Changing Structure of Consumer Credit
BNPL differs from traditional consumer credit in both form and function. Credit cards and other revolving products provide an open credit line that can be reused and carried over time, usually with interest charges that rise quickly when balances are not paid in full. BNPL is typically closed-end, interest-free credit linked to a specific purchase and repaid through fixed installments over a short horizon of a few weeks.
For consumers, that structure offers clarity and ease of use. For merchants, it converts a payment option into a sales tool. For credit providers, usually fintechs, it depends on rapid underwriting, digital checkout integration, automated collections, and increasingly the use of alternative data to assess borrowers with limited formal credit history.
Recent research on the product model, analysis of the business structure, and work on alternative-data underwriting suggests that BNPL is not just a lower-cost credit card substitute. Rather, it is a digitally embedded installment product designed to operate at checkout, with approval and repayment processes built into the payments flow itself.
That distinction is particularly relevant in Latin America. In many markets, a large share of households have irregular income, thin credit records, or no meaningful access to traditional unsecured credit. Under those conditions, the appeal of BNPL lies not only in price but also in accessibility. A loan that can be offered in seconds at the point of purchase may reach consumers who are excluded from conventional credit channels.
The downside is that the same design features that support access may reduce the extent to which consumers are fully aware of the implications of their borrowing decisions. When the credit decision is compressed into checkout, the transaction can feel more like a payment choice than a debt obligation.
Expanding Financial Access for Consumers
At first sight, the case for BNPL from a consumer-welfare perspective is strong. For households without access to affordable formal credit, installment products can smooth consumption (even out spending), support essential purchases, and reduce reliance on more expensive or less transparent forms of borrowing. This may be especially relevant in lower-income segments, where there is considerable volatility in cash-flow and liquidity constraints are acute.
The region’s own experience with digital payments suggests that new infrastructure can broaden financial participation. In Brazil, by the end of 2023, 74% of adults in the low-income registry known as CadÚnico had a Pix key and 72% had used Pix during the year. That evidence, available in recent financial citizenship data, indicates that digital systems can reach populations historically underserved by the banking sector.
Yet access does not automatically level the playing field everywhere. Regional evidence shows that digital-payment use remains weaker among lower-income, rural, older, Indigenous, and informally employed populations, and that low trust and limited digital capability are still important barriers to adoption.
In Mexico, recent survey-based research by IDB finds that weak digital capability and low financial trust are associated with materially lower use of digital payments for online transactions. These findings matter because BNPL is likely to be most attractive precisely where financial buffers are thinnest.
Risks for the Financially Vulnerable
The international evidence on financial health therefore warrants caution. One major study finds that after adopting BNPL, consumers experienced higher overdraft charges, greater credit-card interest expenses, and more late fees, suggesting that installment borrowing can compound financial strain rather than replace other debt.
A randomized experiment similarly finds that BNPL availability increases purchases most strongly among consumers with a greater tendency toward impulse buying, who also default more often and incur more penalties. At the same time, a study on credit-reporting reform shows that when BNPL obligations become more visible within the credit system, usage declines and repayment outcomes improve, particularly for riskier borrowers. Taken together, this evidence suggests that BNPL can support welfare when it substitutes for more expensive or less suitable forms of credit. But it can weaken household balance sheets when credit obligations are opaque and it encourages the taking of repeated small loans that are easy to underestimate and difficult to track.
For lower-income consumers, for whom income is volatile, even short-term installment commitments can increase vulnerability if several purchases accumulate at once. The policy concern is therefore not only overindebtedness in the conventional sense, but also the gradual fragmentation of household liabilities into multiple small obligations that may appear manageable in isolation but become burdensome as a whole.