Writing in 2007 about Amy Womble, a widowed mother-of-two from North Carolina caught very much at the sharp end of the nascent subprime mortgage crisis, a Herald reader dismissively asked why he should “care about Americans who borrow more than they can afford to repay, and those who are stupid enough to lend it to them”.

Less than 12 months later the global financial system was on the brink of collapse. The banks had packaged up all those risky loans as mortgage-backed securities and sold them to investors looking for the biggest return on their money. When Amy Womble and the rest couldn’t pay up, the system imploded triggering a crisis of confidence with major institutions scrambling to collect any and all that was owed to them.

At its peak, the UK government was forced to stump up about £137 billion in efforts to save the likes of the Royal Bank of Scotland (now NatWest), Lloyds, Northern Rock (which was acquired by Virgin Money), and others. Lenders withdrew lines of credit en masse leading to the ruin of tens of thousands of businesses across all sectors and the loss of an estimated 3.7 million jobs.

I’m not sharing this story as a means of claiming any superior economic prescience to the world’s foremost financial minds. It’s merely a stark illustration of the unintended consequences of seemingly small actions – and the failure to take timely preventative measures – in the interconnected world of global finance. The butterfly effect, and all that.

One of the questions frequently asked of late is whether BNPL – online transactions where customers buy now and pay later – could be the next ticking timebomb to rock financial services. However, this is usually framed in the context of its impact on individual consumers, rather than the wider financial industry.

Research released today by credit reference agency Equifax UK shows that while the number of people using BNPL in the UK may have peaked, the average spend continues to grow. This form of financing is thus expected to remain key for many consumers this festive season.

The UK government is currently consulting on draft legislation to bring BNPL products under the supervision of the Financial Conduct Authority (FCA). Somewhat ironically, that consultation is set to close at the end of this week when the number of BNPL transactions is expected to surge as shoppers cash in on Black Friday discounts.

According to Equifax, 38% of UK consumers now indicate they have made use of BNPL, down from 48% last year. Just under three in ten (29%) use BNPL services at least once a year, rising to 54% among 18 to 24-year-olds, while 11% use it more than once a month.

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The analysis also shows that the overall average transaction amount has increased by almost a third – or nearly £100 – in the past year, from £269 to £357.

More than half of BNPL users, nearly 12 million people, plan to use it to help fund this year’s Christmas shopping. The most common reason cited for doing so was the ability to spread payments without incurring interest, while 13% said they would struggle to afford gifts without the help of BNPL.

Concerns have mainly focused on whether those in the latter group – who are also more likely to pay for everyday consumables such as food, drink and toiletries with BNPL – are being sucked into a debt spiral. Figures from consumer charity Citizens Advice suggest that problem borrowing via BNPL is growing at least twice as fast as the expanding UK market, where US fintech Affirm recently launched as the sector’s “more responsible” alternative.

But what of the systematic risks?

Last month it emerged that Klarna, the UK’s biggest BNPL provider, had struck a deal with the Elliott hedge fund to shift £30 billion of future loans off its balance sheet. The deal leaves the consumer relationship with Klarna but passes the risk to Elliott in exchange for an undisclosed discount on the loan.

Klarna isn’t the only one – there have been other deals to securitise BNPL loan packages in the past.

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Last year KKR agreed to purchase up to £33.4bn of current and future loans originated in Europe by PayPal in a move the company said will allow PayPal to meet increasing market demand. Affirm, known for facilitating purchases of Peloton bikes, sold approximately £1.9bn in asset-backed securities last year and Australia's Zip Co has also been active in the market, issuing £1.6bn overall.

Repackaging pools of assets as securities is nothing new, but for those with long enough memories it does bring to mind those subprime mortgage-backed securities that tipped the world into a banking meltdown. Whether this is repeated in some form with BNPL will depend to a large degree on default rates remaining manageable in a global economy where many consumers are still struggling to make ends meet.

While BNPL regulation is clearly a priority for the UK government, experts say that realistically it’s unlikely these products will be under the FCA’s purview until 2026 at the earliest. Until then, it will be down to BNPL providers to determine what affordability tests are applied to ensure shoppers don’t fall into dangerous levels of debt.

Will they apply the brakes when there is clearly appetite across the market to take potentially risky loans off their books? That remains to be seen, but history and intuition suggest the answer is likely “no”.

The forthcoming regulation in the UK is targeted at consumer protection but with refinancing deals an increasingly common practice in BNPL, industry regulators must also keep a watchful eye on this booming section of the credit market.