Cyber Monday: Record spending, more buy now, pay later

Americans spent more than $13 billion online on Cyber Monday, a record according to Adobe Analytics. The checkout data carry a less cheerful detail. Buy Now, Pay Later (BNPL) financing grew at a double-digit pace.

Holiday gifts on instalment

Savings have been run down, credit card rates sit above 22 per cent and everyday prices keep climbing. So millions of shoppers paid for presents with point-of-sale instalment loans. Splitting a purchase into four fortnightly payments kept the spending figures looking healthy while household borrowing grew in a place most credit statistics do not capture.

The autumn did little to ease the strain. The federal shutdown that ran from 1 October to mid-November was the longest on record, delayed pay for federal workers and disrupted food assistance for millions of low-income households in November. Collections on defaulted student loans resumed in the spring, taking money from borrowers who had not paid for years. Tariffs have added to the price of many imported goods on holiday lists. Each of these pushes stretched households towards credit that asks nothing up front.

Lower official rates have not reached the cards. The Federal Reserve cut its policy rate in September and again in October, but card rates are set as a margin over the prime rate, and issuers have kept those margins wide after the losses of recent years. A household carrying a balance still pays well above 20 per cent, which makes an interest-free instalment plan look like the cheapest credit on offer even when the fine print includes late fees.

How pay-in-four works

The standard product splits a purchase into four equal parts: one at checkout and three more at two-week intervals, with no interest if every payment arrives on time. The lender earns its money mainly from the merchant, which pays a fee on each sale that is usually higher than what it pays to accept a card. Retailers accept that cost because instalment options lift conversion rates and basket sizes. Late fees and longer interest-bearing plans make up the rest of the lenders' income.

The design explains why the borrowing is hard to see. Many pay-in-four loans have not been reported to the credit bureaus, so a shopper can hold several at once with different providers and none of the lenders sees the full picture. FICO has built scores that can take BNPL data into account, and some lenders have begun reporting, but coverage remains patchy. The official consumer credit figures and most card-issuer data therefore understate how much holiday spending was financed.

The bills arrive in Q1

BNPL does not make purchases cheaper. It moves the cash drain into the first quarter of the new year. The instalments will fall due in January and February, alongside the post-holiday credit card statements, and discretionary spending will probably have to give.

The arithmetic is simple enough. A basket bought on Cyber Monday under a four-payment plan is only a quarter paid for on the day, and the remaining three instalments land over the following six weeks, which carries the last of them into the middle of January. Anything bought on a longer monthly plan stretches further into the year. Households that used several plans across the season face a cluster of debits in the weeks when they are also paying down December card balances at rates above 22 per cent.

Who carries the risk

The first losers from a squeeze would be retailers that sell discretionary goods to stretched households: apparel, electronics, home furnishings and the mid-market chains in between. Their holiday quarter looks good because some of the spending was pulled forward, and the payback falls in the quarter they report in the spring. The BNPL lenders carry credit risk too, though they fund much of their book through warehouse lines and securitisations, which spreads losses to bond investors. Klarna, which listed in New York in September, will now report that performance to public shareholders every quarter.

Card issuers stand on both sides. Some of the BNPL growth came at their expense, but a shopper who falls behind on instalments often turns to a card to cover them, which can lift revolving balances at high rates. The Consumer Financial Protection Bureau moved last year to treat pay-in-four lenders more like card issuers and has since stepped back from that effort, so the rules on disclosures and disputes remain lighter than for cards.

The reporting calendar will delay the reckoning. Many large American retailers run fiscal years that end in late January, so the holiday season lands in results published in late February and March, flattered by strong November and December sales. The quarter that absorbs the instalment payments is reported only in May and June, by which point management teams will have had months to explain softer traffic as weather or tariffs.

Refunds and paycheques

The strongest case against a spring slump is that households will have help. The tax law signed in July cut taxes retroactively for 2025, including new deductions for tips, overtime and older taxpayers, and much of that relief will arrive as larger refunds in February and March. Unemployment has edged up but remains low by historical standards, and most BNPL loans are small and short, so a missed payment is a nuisance rather than a default spiral. On that view, the instalments will simply be paid out of refunds.

That argument has force, but it misses who uses these loans most heavily. Refund gains from the new deductions go disproportionately to workers with taxable tips or overtime and to older households, while pay-in-four is popular with younger and lower-income shoppers who have thinner savings. The timing also matters: January instalments come due before most refunds are paid. The retail sales reports for January and February, the New York Fed's quarterly household debt report and the delinquency figures that the listed lenders publish will show which effect wins.

Much of the Cyber Monday record was bought on credit. Expect the repayments to squeeze consumer spending in the first months of 2026, and retailers to feel it by spring. The hit will be sharpest in January, before refund cheques arrive, and in chains whose customers leaned hardest on instalments.