What Is BNPL? Benefits of Buy Now, Pay Later for Merchants

Buy now, pay later (BNPL), often referred to as “point-of-sale installment loans,” is a type of short-term financing that lets your customers pay for purchases over time, often with zero or little interest. BNPL payments are popular with shoppers because they are convenient and often interest-free. For merchants, offering BNPL at checkout can result in lower cart abandonment rates and higher average order values.

This article takes a deep dive into how BNPL works, the solutions you can use to implement it in your business, and the pros and cons of offering this financing option.

Graphic of the buy now, pay later process.

Want to learn more about the current BNPL landscape? Check out our article on the top BNPL statistics.

How Does BNPL Work?

While the exact terms of purchase will vary based on the financing solution that you choose, in general, BNPL purchases work like this for shoppers:

Opt for the BNPL option: The first thing that happens in a BNPL purchase is the customer selects the BNPL option from a participating retailer at checkout. (We’ll get to how you can become a participating retailer in the next section on BNPL solutions.)

BNPL appear as a payment method option at checkout.

BNPL will appear as a payment method option at checkout. (Source: Business Insider)

Apply for approval: Before becoming eligible for BNPL financing, customers will sometimes undergo a quick credit check, which typically takes less than a minute. Not every BNPL lender requires a hard credit check; some do a simple identity verification.
Select payment terms: Depending on the BNPL solution, shoppers will be able to choose from a few payment term options. Note, however, that not all BNPL financers offer term options. For some, there is only one timeline, interest rate, and monthly fee to choose from.

Offering multiple payment term options in Affirm.

Some providers, including Affirm, offer multiple payment term options, so customers can choose one that makes sense for them. (Source: CreditCards)

Pay down payment: Once the payment terms are selected, customers return to checkout, where they will be required to make a down payment on their purchase. Depending on the terms they selected, this down payment can be 0%–70% but typically runs anywhere from 10%–25%.
Pay installments: With the initial purchase complete, all customers have left to do is pay their monthly installments on time and in full to prevent incurring late fees. They can also choose to pay off their entire purchase at any time.

Want to set up BNPL for your business? Learn through our guide on how to offer customer financing and BNPL.

BNPL Solutions

To offer a BNPL payment option at your business checkout, you will need to sign up and integrate a BNPL solution into your POS and/or ecommerce site. In this section, we will review some of the top BNPL providers, how they work, and how you can implement them into your transactions.

Popular BNPL Solutions Compared


	Visit Affirm	Visit Afterpay	Visit Klarna	Visit Zip	Visit PayPal
Cost	Starting at 5.99% + 30 cents per transaction (businesses with annual revenue over $5 million receive custom quotes)	30-cent flat fee and variable 4%–6% commission rate per transaction (based on annual revenue)	3.29%–5.99% + 30 cents per transaction and $30 monthly fee	3%–6% + 30 cents per transaction	3.49% + 49 cents per transaction
APR	0%–3%	0%	0%	0% ($1 convenience fee)	0%
Payment Plan Terms	Varies based on retailer	4 installments, due every 2 weeks	4 installments, due every 2 weeks 30 days to pay Financing over 6–36 months	4 installments, due every 2 weeks	4 installments, due every 2 weeks
Late Fee	$0	$8	$7	$5, $7, or $10	$0
Integrations	Shopify, WooCommerce, Salesforce, BigCommerce, Wix, API	Shopify, WooCommerce, Wix, BigCommerce, Magento, Magento 2, Stripe, Squarespace, Salesforce, Ecwid, PrestaShop	Adobe, BigCommerce, Cirkuit, Optimizely (formerly Episerver), PrestaShop, Salesforce, SAP, Shift4Shop, Shopify, WooCommerce, Wix	Magento 2, WooCommerce, Shopify, Salesforce, BigCommerce, CartHook	BigCommerce, 3dcart, Centarro, IWD, Miva, PinnacleCart, Salesforce, WooCommerce

Affirm, a popular BNPL service that has one of the largest user bases (over 11.2 million shoppers), offers a variety of payment timelines and terms that you can choose to offer your customers. This means you can decide whether you want to require a down payment, how quickly you want customers to pay, what your APR will be, and how many payment options you will provide.

Businesses with annual revenue less than $5 million have a flat rate of 5.99% + 30 cents for all transactions, and Affirm does not charge late fees. It allows you to integrate its payment option on both product pages and at checkout, so customers can make informed purchases and know their options as they shop. It also has a marketplace app where you can list your business, so new customers can discover you from its platform.

Additionally, it has an in-store option where customers can get approved for a purchase through the Affirm app or website, then load their loan value onto a virtual Visa card. From there, they can use that card on any in-store sales where Visa is accepted and pay for their purchase over time on an Affirm payment plan.

Afterpay is another BNPL service that lets customers pay for their purchases over the course of six weeks, with a 25% down payment upon purchase and then three subsequent payments due every two weeks. Unlike Affirm, it does not offer payment term options—there is one standard plan for all purchases.

It allows you to integrate its payment option both on product pages and at checkout, helping with conversion and assisting shoppers in making informed decisions. Not only that, but it integrates seamlessly with a rich selection of website platforms. Like Affirm, Afterpay offers an in-store option where customers can create an Afterpay Visa card through the app, add it to their digital wallets, and then use it for in-store purchases.

Klarna is another major BNPL service provider, with 147 million global shoppers and 2 million daily transactions. You can integrate it across your website on both product pages and checkout.

Like Afterpay, Klarna offers a six-week payment option (Pay in 4), but it also has pay in 30 days and long-term financing over six to 36 months. The best part is you get to choose what payment terms you offer based on what works for your business.

The solution also has a marketplace app where you can list your business. You can even utilize its marketing solutions to attract and retain customers.

Formerly known as Quadpay, Zip is another popular BNPL payment service that allows you to offer a six-week payment option with 25% due at checkout and the remaining balance due in three installments over the course of six weeks. Like Afterpay, Pay in 4 is the only payment plan offered.

The provider allows you to integrate its payment option into both product pages and at checkout to help shoppers make informed purchases. Additionally, Zip allows customers to use its service in-store by applying for a Zip Visa through its marketplace app.

PayPal is also coming to the market with a BNPL option called PayPal Pay in 4. With it, just like Klarna and Afterpay, you can offer your customers the option to pay for purchases in four installments, with 25% due upfront and the remaining amount due every two weeks for six weeks. PayPal is an interest-free solution and waives late fees to keep your shoppers happy.

It also lets you integrate its payment option into both product pages and your checkout page and lets customers manage their purchases through the PayPal app. Note that unlike the other BNPL provider apps, the PayPal app is not a marketplace—it is a money management site that shoppers can use to view their payment plans and progress. Moreover, PayPal lacks an in-store payment option, except for major retailers such as Target and Best Buy.

Learn more with our breakdown of the best BNPL apps for merchants.

Pros & Cons of Offering BNPL

There are lots of great benefits that can come from offering BNPL to your customers. However, there are also drawbacks you should consider, particularly impacts to the customer that could alter their opinion of your brand.

Leads to higher conversion rates: Retailers see an average of 2.1% higher conversion rates when they offer BNPL payment options.

Generates higher order values: Affirm reports that retailers see up to 85% higher average order values for purchases using BNPL over other payment methods.

Improves customer experience: Offering a BNPL payment option gives customers more control over how they want to pay, which leads to a better experience.

Increases reach: By offering payment plans, you can expand your reach to customers with less upfront capital, especially younger generations. In fact, 75% of BNPL users are either Gen Z or millennial shoppers.

Makes it easier to sell high-value products: Some 45% of BNPL customers use the service to make purchases that wouldn’t otherwise fit into their budget. Offering a BNPL option will make it easier for you to sell through your high-value items because it makes them viable to those lacking upfront capital.

Charges merchant fees: As we saw when looking at the different BNPL providers, each comes with a merchant processing fee with a flat rate plus a fee based on the size of the purchase.

Has late penalties: For most providers, if a customer misses an installment in their payment plan, they will incur a late fee. While this is outside of your control, these fees can cause customers to feel frustrated with your business.

Depletes credit score: Another factor that can be affected by late or missed payments is the depletion of customer credit scores. Again, while out of your hands, this can—in turn—breed customer resentment toward your brand.

Causes incurring debt: Because BNPL options make expensive items more viable, they can also tempt people to make purchases they cannot actually afford. In fact, 46% of BNPL users anticipate making a late payment in the next year. This can cause customers to rack up debt and interest on purchases from your business.

You can let your customers know that many BNPL platforms allow them to set up a user account where they can link their bank account and put their monthly payments on autopay. This is a great way to avoid late fees and missed payments.

Bottom Line

As we look to the future of retail, BNPL services are going to play a major role in the payments landscape. Here, we examined what BNPL is, how it works, solutions for your business, and its highlights and drawbacks. With this knowledge, you are ready to start the process of integrating BNPL services into your transactions and reaping the benefits.

What Is BNPL? Benefits of Buy Now, Pay Later for Merchants

How Does BNPL Work?

BNPL Solutions

Popular BNPL Solutions Compared

Pros & Cons of Offering BNPL

Bottom Line

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About the Authors

Meaghan Brophy

Brigitte Hodge