Scariest financial number of the summer: By 2026, nearly one-quarter of all global online purchases will be made with a buy now, pay later option.

Did you think I was going to quote the inflation rate or something to do with interest rates? Both rates and inflation are a worry, but at least we now know what we’re up against. Buy now, pay later (BNPL) is different because people are still getting acquainted with the option of making installment payments for online purchases of cosmetics, clothes, airline tickets, and more.

The forecast about BNPL was included in a recent review of new payment trends by Mastercard, which reports that 77 per cent of Canadians have heard of BNPL and 30 per cent are comfortable using it right now. Those who were cautious about BNPL tended to cite trust issues associated with the upstart financial players offering the service.

The Mastercard report included a reference to a U.K. study showing that BNPL spending will rise in four years to more than 24 per cent of global e-commerce transactions for physical goods by value, compared to 9 per cent in 2021.

To put this another way, one in four people will buy things online that they very likely cannot pay for in the here and now. No doubt, some people use BNPL to manage their cashflow and find it effective and efficient to pay in small chunks without monthly fees or interest charges. But let’s be clear on the business model for BNPL. Retailers pay the cost of offering this service – they only do that because they see the expense being offset by higher sales.

High inflation and rising interest rates explain why this is a particularly risky time for BNPL to build its franchise. Households are being squeezed by higher costs for food, gas, mortgages, lines of credit, and more. BNPL commitments that seem affordable today could turn nasty in the months ahead, especially for people making multiple installments.

Globe personal finance editor Roma Luciw and I discussed our reservations about BNPL in an episode of our Stress Test personal finance podcast for Gen Z and millennials. Give it a listen before you join the growing crowd of BNPL users.

The Globe and Mail, August 16, 2022