Buy Now, Pay Later (BNPL) programs are rapidly gaining popularity as a convenient alternative to traditional credit. These services allow shoppers to purchase products and pay for them over time, often with no interest.
While credit cards still hold a strong presence, layaway is becoming outdated, and BNPL solutions are stepping in as the modern answer. A recent survey revealed that around 25% of Americans have already used BNPL options.
Retailers are charged a fee for offering BNPL, but the increase in sales volume typically compensates for this expense. Businesses that offer BNPL see more completed purchases and fewer abandoned carts.
What Is Buy Now, Pay Later (BNPL)?
BNPL is a point-of-sale financing solution that allows customers to buy goods and pay over time, usually in fixed monthly payments. Unlike credit cards, BNPL doesn’t always involve interest or require a strong credit history.
Popular providers include Shop Pay Installments (Shopify), Affirm, Afterpay, Sezzle, PayPal Pay Later, and Klarna.
Most BNPL companies perform a soft credit check (which doesn’t affect a customer’s credit score) before approving the transaction. Customers then repay the loan in installments. Some BNPL plans are interest-free, while others may charge interest or late fees. Retailers cover the cost of the service through a transaction fee.
How BNPL Works in 5 Simple Steps
- Customer Shops as Usual: Shoppers browse and select items to purchase.
- BNPL Option at Checkout: During checkout, customers can choose BNPL as their payment method.
- Credit Check: A soft credit check is run to assess eligibility.
- Retailer Pays a Fee: The BNPL provider deducts a transaction fee (typically 2% to 8%) from the amount paid to the retailer.
- Customer Repays Over Time: Payments are made in scheduled installments. Early repayment often avoids interest charges.
Why Is BNPL So Popular?
- Accessibility: Great for customers without credit cards.
- Ease of Use: Simple online or in-app checkout process.
- Lower Risk for Retailers: The BNPL provider assumes payment risk.
- Quick Integration: Easily added to online stores with tools like Shopify.
- More Sales: Increases conversions and average order values.
Key Benefits for Retailers
- Higher Average Order Value: Shoppers can afford more by spreading payments.
- Better Cash Flow: Retailers get paid upfront by BNPL providers.
- Reduced Cart Abandonment: Flexible payments encourage completed purchases.
- Appeals to Younger Shoppers: Attracts Gen Z and Millennials who prefer alternatives to traditional credit.
Top 6 BNPL Providers
1. Shop Pay Installments (Shopify)
- Best Features: Integrates with Shopify online stores and POS; payments disbursed in 1-3 business days.
- Pros: Seamless integration, no refund processing fees, boosts AOV.
- Cons: Only works within Shopify.
- Payment Options:
- $50-$999.99: Four interest-free biweekly payments.
- $150-$30,000: Monthly payments with 10%-36% APR.
2. Affirm
- Best Features: Works with major retailers like Amazon and Target; flexible payment options.
- Pros: Integrates with Shopify, available in U.S. and Canada.
- Cons: Must have AOV of $50+, only for online consumer sales.
- Interest: Short-term loans are interest-free; long-term loans up to 36 months charge 10%-30% APR.
3. Afterpay
- Best Features: Credit limit tool; no interest; easy Shopify integration.
- Pros: Immediate payments to merchants; built-in fraud control.
- Cons: Best used with Square for in-person sales.
- Pricing: 30¢ + 4%-6% per transaction.
4. Sezzle
- Best Features: Allows payment rescheduling and supports subscriptions.
- Pros: Payment flexibility; helps build credit via Sezzle Up.
- Cons: Higher merchant fees.
- Pricing: 30¢ + 6% per transaction.
5. PayPal Pay Later
- Best Features: Offers “Pay in 4” and monthly options.
- Pros: Easy setup; trusted brand; huge user base.
- Cons: Limited repayment flexibility.
- Interest: Up to 24% APR for monthly payments.
6. Klarna
- Best Features: Offers multiple payment plans; browser extension; loyalty perks.
- Pros: Available online and in stores; flexible options.
- Cons: High fees and limited to customers with strong credit.
- Interest: Up to 25% APR depending on plan.
Things to Consider When Choosing a BNPL Provider
- Integration: Choose one that fits your ecommerce platform.
- Loan Limits: Ensure it supports the price range of your products.
- Funds Speed: Get paid quickly after the sale.
- User Experience: Clear terms, responsive support, intuitive design.
- Flexibility: Offer different payment plans to suit various shoppers.
- Analytics: Access reports and data to track BNPL performance.
Promoting BNPL to Increase Sales
- Website Banners: Use home, product, and cart pages.
- Email Campaigns: Notify customers via newsletters.
- In-store Signage: Post reminders near bestsellers and checkout.
- Leverage BNPL Partner Tools: Use available brand assets and co-marketing support.
Alternatives to BNPL
- Layaway: Full payment before delivery.
- Personal Loans: For larger purchases.
- Loyalty Programs: Use points to reduce prices.
- Income-Based Pricing: Offer sliding scale pricing based on income.
- Store Credit Cards: For growing businesses.
Final Thoughts
BNPL is a fast-growing trend that enhances the shopping experience and boosts sales for merchants. With flexible terms, quick integration, and access to younger demographics, BNPL is a win-win for both businesses and customers.
By selecting the right provider and promoting the option effectively, businesses can drive more conversions, reduce cart abandonment, and increase average order values.
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