1. The current market situation in Germany and Europe

The market for short-term consumer loans has grown rapidly in recent years and has been a source of significant growth and even greater expectations in many areas. In particular, Buy-Now-Pay-Later (BNPL) offerings have evolved from a niche product into an integral part of the payments landscape. The German BNPL market alone is projected to reach a volume of approximately 72 billion euros in 2026, an increase of about 16 to 17 percent over the previous year, following a CAGR of approximately 19 to 24 percent from 2022 to 2025. A similar picture emerges at the European level where the market is expected to grow by about 19.5 percent to approximately 190 billion euros in 2026 [1][2]. Klarna, in particular, has benefited from this momentum and for the 2025 fiscal year, the company reported revenue of about 3 billion euros (up 25 percent from the previous year) and 118 million active users [3].

However, there is a downside to this narrative of growth. Alongside the increase in short-term, often easily accessible forms of credit, personal debt in Germany has risen significantly. According to CRIF’s 2025 Debt Barometer, 107,816 personal bankruptcies were recorded last year, 7.8 percent more compared to 2024 and the highest annual figure in the past ten years. The shift towards younger age groups is especially pronounced. Personal bankruptcies rose by 52.6 percent among 18- to 20-year-olds and by 28.6 percent among 21- to 30-year-olds. CRIF explicitly attributes this trend to impulse instalment purchases and the growing use of BNPL [4]. Creditreform reports around 5.67 million over-indebted adults for 2025, an increase of 111,000 on the previous year. This raised the over-indebtedness rate from 8.09 to 8.16 percent. As a result, more than one in twelve adults in Germany is now considered to be heavily in debt [5].

Fig. 1. Trends in Buy-Now-Pay-Later (BNPL) Offers and Household Debt in Germany and Europe

In response, the EU adopted the second Consumer Credit Directive (CCD2, known in Germany as VKR2), a fundamental reform of consumer credit law that applies from 20 November 2026. The following overview summarizes the key changes:

Fig. 2. Key Provisions of the Second Consumer Credit Directive (VKR2)

2. The challenges for players in this market

As a result, requirements for consumer lending will rise significantly across the entire value chain, from data collection and scoring logic to documentation and reporting. Banks that want to continue offering these products will need to invest substantially in processes, IT systems and governance. At the same time, the same regulation limits the revenue side. Codified price caps, restrictions on volume-based remuneration and extended forbearance obligations leave lenders less room to offset the higher fixed costs of compliance through their margins.

For institutions whose business model is not focused around consumer credit, the strategic consequence is likely to be clear. Some products will no longer be profitable, or banks will simply choose to stop offering them. The overdraft is an obvious example. It is expected to become less common as a standard feature of account opening and to be treated increasingly as a separate product that requires its own application and credit check. Furthermore, a common misconception is that the reform only affects credit agreements concluded after the effective date. However, since an overdraft is legally an open-ended contract, the legislator has explicitly extended the new obligations to existing overdraft facilities granted before 20 November 2026. The most important of these is the new repayment offer under Section 504(2) of the German Civil Code (BGB) in conjunction with Article 229 Section 71(2) of the Introductory Act to the German Civil Code (EGBGB) [6]. Banks must therefore adapt their processes not only for new business but also retroactively for their entire portfolio, which significantly increases the effort required for implementation.

The situation is quite different for institutions whose business model is fundamentally based on granting consumer loans, such as companies like Klarna, Teambank with its easyCredit offering, Ratepay, and Riverty, or firms specializing in sales financing, such as Consors Finanz and CreditPlus Bank. For these institutions, withdrawing from regulated business is not an option, as the products in question form the very foundation of their business model. They will have to make the necessary investments in any case.

The increased regulatory barriers to entry for lending (stricter creditworthiness assessments, expanded disclosure requirements, and accountability requirements) make the sales process more time-consuming and costly, while at the same time, the profitability of individual loans is capped by price ceilings and restricted compensation models. The improvement in default rates sought by the regulator is unlikely to offset this dual impact on earnings, particularly in the short to medium term, as long as the transition costs have not yet been amortized.

3. How can these challenges be addressed?

This complex situation gives rise to fundamentally different yet complementary levels of urgency for both types of institutions, which can be leveraged strategically.

3.1 Retail Banks: Reorganizing the Product Portfolio

Traditional retail banks will need to rethink their short-term consumer finance products. An obvious first response will be to steer customers with liquidity needs towards alternative, less heavily regulated products. Charge cards are one example. Debit cards with deferred payment issued by a credit or payment institution are exempt from CCD2 under Section 506(1) sentence 2 no. 4 BGB (new version). This applies as long as repayment is due within 40 days, no interest is charged and only low fees are levied for the payment service [7]. Banks could therefore try to cover part of today's overdraft demand with charge cards. Since this removes a significant source of interest income, fees for these products are likely to rise over time to offset at least part of the loss. Pushing through higher fees in a competitive market will be the harder task.

3.2 Credit Specialists: Volume and Acquisition Costs

Conversely, specialized institutions focused on consumer loans will seek to expand their customer base and attract precisely the loan volumes that primary banks will no longer cover as a matter of course in the future. The problem here is that customer acquisition costs in this segment are significant, especially when new customers must be acquired through traditional marketing channels.

3.3   The Win-Win Opportunity: Referral Partnerships

This is precisely where the real strategic opportunity lies that can bring both sides together. One conceivable model would be one in which established primary banks -which, going forward, would no longer grant overdraft facilities to their customers as a matter of course - would actively refer customers to a cooperating specialized institution in the event of a recognizable liquidity crunch and, in return, receive a referral commission that would at least partially offset the lost interest income. For such a model to work at a relevant scale, its integration into the process becomes a critical success factor. If the customer must go through the entire KYC process again at the specialized institution, significant drop-offs in conversion rates are to be expected. Optimized, technology-supported handover processes can reduce this effect at least in part, for example through the EUDI Wallet in future. In certain cases, verified identity data could also be transferred between the institutions involved, where regulation allows it.

However, a prerequisite for such a partnership model is that both sides have genuinely aligned interests. Without a sound incentive structure, there is a clear risk of adverse selection. In theory, a bank could refer mainly its weaker borrowers to the partner institution and keep the more attractive customers in-house. A workable model therefore needs a business case that holds up for both sides, possibly with risk-benefit sharing. Both partners should have an economic interest in the quality of the referred customers and in how they perform over time. The underlying technology must also consistently meet the tighter regulatory requirements. Credit decisions need to be deterministic, and the reasoning behind them must be traceable. Only then can the business run in a compliant, efficient and scalable way.

3.4   Recommendation

Traditional retail banks and specialist consumer lenders should each set up a discovery project now and identify potential partners. The aim is to quantify early on which lending volumes CCD2 is likely to shift, define suitable partnership models and develop an operating model that is economically viable for both sides. Institutions that actively shape the restructuring of the market can turn the regulation into a strategic opportunity rather than a pure cost item.

4. Sources

[1] ResearchAndMarkets.com: Germany Buy Now Pay Later Business Report 2026 (BusinessWire, January 2026): German BNPL market volume 2026 approx. USD 83 bn, CAGR 2022–2025.

[2] ResearchAndMarkets.com: Europe Buy Now Pay Later Business Databook Report 2026–2031 (GlobeNewswire, January 2026): European BNPL market volume 2026 approx. USD 217.7 bn, forecast to 2031.

[3] Klarna Group plc: Full-year 2025 and Q1 2026 results (summarised in Chargeflow, "$560B BNPL Market in 2026", August 2026, among others).

[4] CRIF Deutschland: Schuldenbarometer 2025, press release „Privatinsolvenzen steigen auf Höchststand“ (personal insolvencies reach record high), February 2026.

[5] Creditreform: press release "Private Überschuldung – 5,67 Millionen Erwachsene betroffen" (private over-indebtedness affects 5.67 million adults), August 2026.

[6] Act implementing Directive (EU) 2023/2225 on credit agreements for consumers, Federal Law Gazette (BGBl.) 2026 I No. 139 of 18 May 2026; Section 504(2) German Civil Code (BGB), new version, in conjunction with Article 229 Section 71(2) Introductory Act to the German Civil Code (EGBGB).

[7] Section 506(1) sentence 2 no. 4 German Civil Code (BGB), new version (Act implementing Directive (EU) 2023/2225), exemption for debit cards with deferred payment.