Merchants pass along the cost of their more expensive buy now, pay later transactions to U.S. consumers, an advocacy group said in a report calling for more regulation of the industry.

The growing BNPL industry affects broader consumer prices as it pushes financing into more retail areas, said the report Monday from Protect Borrowers, which lobbies and litigates on consumer debt issues. Protect Borrowers was formed in 2018 as the Student Borrower Protection Center by former officials of the Consumer Financial Protection Bureau. 

“The costs borne by merchants for BNPL partnerships are ultimately passed onto all Americans, regardless of whether or not they use BNPL, through higher prices,” said the Protect Borrowers report. “These costs may only increase as BNPL adoption becomes more widespread among sellers and more deeply ingrained in the payments ecosystem.” 

Trade groups for BNPL providers called the contention hogwash.

“There is nothing to substantiate the claim that BNPL merchant fees are passed along to consumers,” Phil Goldfeder, the chief executive of the American Fintech Council, said Monday in an emailed statement. BNPL financing offers “more choices for consumers and expanded access to affordable credit, while increasing economic activity for the merchants,” he added. 

The report “provides no quantitative or qualitative data to back up their claims that merchants are passing fees on to consumers,” a spokesperson for the Financial Technology Association said Tuesday. “This claim is an opinion, not a fact.”

The AFC and FTA represent multiple BNPL companies including Affirm Holdings, Block and Klarna Group. Spokespeople for Affirm and Klarna said the companies had no comment on the report.

The BNPL industry began largely with no-interest loans consumers paid in four installments but has increasingly moved into longer, interest-bearing lending.

Protect Borrowers doesn’t have transaction data on the sale of consumer goods associated with BNPL financing, Executive Director Mike Pierce said Monday in an interview.

“We have superficial observation of increasing costs and increasing use of more expensive financing,” he said. “The shift toward financing stuff that used to be paid for with cash and not credit … is producing higher sticker prices for people across the economy.”

Consumers’ growing use of BNPL financing for everyday spending such as groceries has likely contributed to higher costs for merchants, said Pierce, a former deputy assistant director of the CFPB.

“Many merchants are very very low-margin businesses and I would be surprised if they weren’t laser focused on how to shave margin off on transaction costs” by passing those along, he said.

Last year, six large BNPL providers provided an estimated $157 billion in credit in the U.S., with the industry’s pay-in-four model accounting for about half the total, according to a Federal Reserve Board of Governors report on BNPL lending released last month.

The BNPL industry has seen “substantial growth” since 2019, with pay-in-four loan volume increasing about 80% since the Consumer Financial Protection Bureau last assessed the lending in 2023, according to the Fed report.

By contrast, U.S. credit card payment volume was $6.5 trillion last year across the four major card networks, according to data from payment card industry tracker Nilson Report.

BNPL lenders have two general models for their merchant relationships. One is direct integration with a merchant’s checkout flow or a listing on the BNPL’s app or website. The latter placement carries additional fees for the BNPL provider, the report noted.

Some of the fees can be as much as triple the cost of a credit card transaction and about 10 times more than a debit card, the report said, noting that merchants generate higher sales and receive full payment upfront from the BNPL company. BNPL companies also generate interchange revenue when a consumer uses a one-time virtual payment card or a debit or credit card issued by the lender.

The report calls for further regulation of the industry, including a federal “BNPL borrower bill of rights” to cap various industry fees and limit interest rates, along with stricter underwriting standards and curbs on marketing practices. 

BNPL transactions add to merchants’ cost structure but can also provide meaningful business benefits, said Doug Kantor, an executive committee member of the Merchants Payments Coalition. However, he added, BNPL represents only a minute sliver of overall U.S. payments volume.

“The fees are quite high, and that’s something that individual businesses have to make decisions about on those costs versus what BNPL provides,” Kantor said Tuesday in an interview.