Inflation may destroy some buy now pay later platforms. But not before it delivers them a boatload of new customers.

According to a new report from Morning Consult, the percentage of U.S. adults reporting that they have used BNPL has never dipped below 16% this year. And BNPL use is rising among higher-income households.

And inflation is likely to prove an accelerant for BNPL demand. BNPL may also play a role in keeping consumers spending while prices keep rising.

And it all makes sense. As inflation drives up interest rates, zero-interest BNPL loans start looking pretty sweet. And as inflation drives up prices, the ability to lock in the price of a good with a downpayment and then pay it off in installments is also attractive.

This might help explain why BNPL forecasts remain bullish. For example, Juniper Research estimates global BNPL transaction volume will be $360 billion this year. And it will rise to $900 billion by 2027.

The Other Side of the Coin

However, as we reported last week, there is growing concern that inflation may be the straw that broke the camel’s back for BNPL platforms already operating on the knife’s edge.

Patrick Harker, President of the Philadelphia Federal Reserve Bank, recently said inflation should be making BNPL platforms very nervous. He said the business model was fairly stable in a low-interest rate environment. But now the game has changed.

“Forced to borrow at higher rates, these firms are facing pressures they simply weren’t last November. Unsurprisingly, major operators in the space have retrenched, with one of the leading lenders shedding 10% of its workforce last month,” he said, referring to Sweden’s Klarna.

We’ve also seen BNPL M&A stop in its tracks as a result of inflation and other macro concerns. Notably, Australia’s highly acquisitive ZipCo canceled its proposed acquisition of the second-tier U.S. BNPL Sezzle. Zip decided the wise course was to pay the $11 million cancellation fee and walk away.

A White Label Future

Some are arguing that BNPL will be here for the long haul. However, the players that survive the long haul may be very different from those dominating BNPL today.

Apple is held up as a potential winner in the current BNPL environment. And for a few different reasons. One, it has the cash to be its own bank and doesn’t have to rely on borrowing the funds it lends to consumers. Apple is rolling out its own BNPL offering, Apple Pay Later, working with Mastercard and Goldman Sachs.

The other advantage Apple holds is that it is also a leading player in point-of-sale via Apple Pay. This access to consumer data will give it an edge in accurate underwriting, which will become even more critical as BNPL adoption grows, which will inevitably create upward pressure on defaults.

Sean Banks, a partner at TTV Capital, pointed this out at a recent fintech conference.

“If you think about the future of underwriting, the amount of detail that Apple will have around one of its customers based on usage and performance within the device, which is the typical way people connect anyway, should allow them to have some of the best underwriting possible out in this space,” Banks said.

Another potential winning category is the white label BNPLs that help financial institutions with the mechanics of delivering a BNPL solution but stay out of the financing piece.

The CEO of one such player, Jifiti, made this case in a Forbes Council post today.

“While the BNPL industry is here to stay, not every player will survive. Based on my experience and the established factors impacting business operations, I believe the secret to a sustainable BNPL solution is this—to keep the two components of BNPL completely separate. The technology is provided by the technology companies and the financing and underwriting by regulated banks and lenders,” wrote Jifiti CEO Yaacov Martin.

“I believe that in order to achieve more robust technology and healthier financing, you need to maintain this separation.”