What Is BNPL? Benefits of Buy Now, Pay Later for Merchants
This article is part of a larger series on Payments.
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.
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 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.
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
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 |
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.
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.