Strategy Talk: The Evolving Role of BNPL in the New Money Movement Paradigm
Mischa Schmierer (Zoot) & Priit Põldoja (Inbank)
An Estonian embedded finance bank serves 600,000 customers across five European countries, originating 500,000 contracts annually, primarily via merchants and online partners. Buy Now, Pay Later (BNPL) evolved as a lending product framed as payment to bypass consumer credit regulations, offering zero-interest, frictionless financing mainly in retail and e-commerce but expanding to sectors like automotive and medical. Upcoming EU Consumer Credit Directive II threatens BNPL's regulatory loophole, transforming it into regulated credit and increasing friction. Despite this, BNPL’s usage grows, driven by younger customers, necessitating adaptive pricing and credit-compliant technology.
"Buy Now, Pay Later has found wide usage, especially among younger customers, because it's free and simple. Despite growing regulations adding friction, it remains a strong innovation with a place in the market and potential for future adaptation."
Summary
- Buy Now, Pay Later (BNPL) is a lending product positioned as payment, growing due to simplicity, zero interest, and merchant benefits. - BNPL use extends beyond retail to electronic goods, car sales, tires, and some medical financing. - Business use of BNPL is limited due to small ticket sizes and lack of consumer credit restrictions. - Upcoming regulations like CCD2 will classify BNPL as credit, adding friction but not ending the product. - BNPL continues growing, popular with younger consumers; pricing and market dynamics may evolve post-regulation.
Article
Buy now, pay later: How regulation is reshaping the future of embedded finance
At the Nordic Fintech Summit held in May 2025, industry experts Mischa Schmierer of Zoot and Priit Põldoja of Inbank delivered a compelling analysis of the evolving buy now, pay later (BNPL) landscape, highlighting how regulatory changes are transforming what began as a payment innovation into a fully regulated credit product.
From payment loophole to mainstream financing
"Buy now, pay later is not just for retail; it's used online, offline, and in sectors like car sales and medical financing, proving the product's versatility," explained Põldoja, whose Estonian-based embedded finance bank serves 600,000 customers across five European countries.
The speakers traced BNPL's origins as a credit product cleverly positioned as a payment method, which allowed it to bypass traditional consumer credit regulations. By offering zero-interest financing, companies like Klarna and Inbank created a frictionless experience that benefited both merchants and consumers.
"Offering zero-interest financing as a payment method creates a simpler product, providing huge process advantages and attracting new customers to merchants," Põldoja said, describing how Inbank now originates approximately 500,000 new contracts annually, with 80% processed through merchants or online partners.
Beyond e-commerce: BNPL's expanding reach
While BNPL gained prominence in e-commerce for fashion and beauty purchases, the presentation revealed its significant expansion into other sectors. According to Inbank's data, approximately 75% of their BNPL business occurs online, but the remaining 25% represents a growing offline presence.
The speakers highlighted unexpected applications including seasonal tire sales through car dealerships and medical expense financing – areas where traditional credit options have created friction.
"Medical is a challenging area for financing in general. Doctors don't want to use financing, but customers very often need it because medical expenses can come up unexpectedly," Põldoja noted, explaining how BNPL offers a streamlined solution in these situations.
Regulatory reckoning: The impact of Consumer Credit Directive II
The most significant challenge facing the BNPL industry, according to the speakers, is the implementation of the EU's Consumer Credit Directive II (CCD2), which effectively closes the regulatory loophole that allowed BNPL to operate as a payment method rather than a credit product.
"It's going to kill, in my opinion, the way the product works at the moment. It will become a credit product," Põldoja stated bluntly. The new regulations will require full credit decisions in accordance with consumer protection laws, adding steps to what was previously a frictionless process.
The speakers suggested this change might benefit established financial institutions already accustomed to regulatory compliance. "Those organizations who are inherently stronger in credit might be winners comparatively to the technology players," Põldoja observed.
Future outlook: Adaptation and continued growth
Despite regulatory headwinds, both speakers remained cautiously optimistic about BNPL's future. Põldoja revealed that Inbank's BNPL business experienced unexpected growth after a slow start in 2020, with volumes continuing to rise despite pending regulatory changes.
"If you don't know the past, you can't predict the future—but Buy Now, Pay Later has grown steadily since launching in 2020, gaining customer familiarity and adoption over time," he said.
The speakers predicted that the industry would adapt through innovations in pricing models, potentially shifting some costs to consumers rather than relying exclusively on merchant fees. They also emphasized that the technological infrastructure supporting instant credit decisions would help maintain BNPL's appeal despite added regulatory friction.
"Since the product is free to customers, somebody has to pay the fees; new regulations might shift pricing models and require more innovation, but the digital infrastructure supports smooth lending decisions," Põldoja explained.
As the session concluded, the speakers acknowledged that while regulation would transform BNPL, its popularity among younger consumers and the underlying value proposition ensure its continued relevance in the evolving financial landscape.
Part of Nordic Fintech Summit