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How does Buy Now Pay Later (BNPL) work for businesses?

To attract a wider range of customers, many owners of retail businesses with point-of-sale systems are adopting a Buy Now, Pay Later (BNPL) payment model. The BNPL method has evolved largely due to changes caused by COVID-19 and the increase we have seen in online shopping.

So what is BNPL for business and how can it help you accelerate your profits? We explore the answers to this question to help you get started and attract a new type of customer.

What is buy now, pay later? BNPL Definition

According to the latest figures from merchant services giant Worldpay, as noted by, “BNPL is now the fastest growing online payment method – accounting for more than 5% of all This has seen the size of the BNPL market triple in 2020, with 5 million people using BNPL since the start of the pandemic.

This payment method allows consumers to spread the cost of paying for their goods and services, usually over a six-week period, into four equal installments. The repayment period and the amount of the installments may vary.

At first glance, it looks like a layaway or just using a credit card. So what’s the difference? Well, one big difference is that many BNPL options are interest-free. Another point to note is that the retailer requires the consumer to select a payment option in advance, for example, six payments by a certain date, pre-determined with the purchase.

As a retail business owner or manager, you simply cannot ignore this payment method change, as it provides financial inclusion for those who need help spreading the cost of their payments without the added interest. .

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(Image credit: Stripe)

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A report of explains that the consumer payment trend was started by Swedish fintech Klarna and Australian company Afterpay. In fact, in October 2021, financial services software company and point-of-sale system provider, Stripe, partnered with Klarna to offer businesses buy-it-now and pay-later options after Klarna already successfully launched in the consumer bank account market.

Other popular fintech moguls such as PayPal, Amazon, and Apple have also jumped on the bandwagon and started adapting their own forms of BNPL to keep up with the competition.

Buy Now Pay Later, Representative Image

(Image credit:

In order to understand what the BNPL is and how it became so popular, let’s go back to its beginnings. There have been various other options, such as layaway, that big-box retailers have used in the past.

These options have largely dissolved due to the increase in the use of credit cards. Retailers have adopted their own versions with in-store credit cards often pushed at the point of sale, giving the store more control over the consumer experience and building brand loyalty with incremental purchases. explains that the key elements of BNPL are generally small purchases, and no credit checks or traditional underwriting. BNPL services do not share user data with credit bureaus, so this debt is not available to creditors.

There is no interest if payment is made on time, and typically 25% of the total purchase is paid at the time of purchase with three follow-up payments at two-week intervals. The buyer is required to link a debit or credit card to the BNPL purchase and accept the following automatic payments.

How BNPL works for companies?

BNPL is a service provided by a third-party provider that offers customers an alternative payment option when checking out. Here is a quick overview of the process.

1. The customer who buys from you must pass a quick credit check.

2. Then the BNPL supplier pays the retail owner (you) the full amount.

3. The customer is obligated to repay the third party service provider over time in installments.

4. Credit check is not thorough and does not affect buyer’s credit rating.

The time and percentage of installment payments are determined by the third-party service the retailer chooses to integrate with their point of sale system. Preferred BNPL providers include Clearpay, Laybuy, PayPal, and Klarna.

Some providers offer a set number of payments, such as PayPal’s “Pay in 3” process, while others allow their customers to choose how much they want to pay over a period of three to twelve months.

Types of BNPL Service Options for Retailers

Klarna: Buy Now Pay Later vendor app on mobile screen

(Image credit: Klarna)

Retailers can consider two types of BNPL service options: a merchant transaction fee loan and a consumer interest loan.

Merchant transaction fee loan

With merchant transaction fees, the customer pays no interest on their overall purchase, as long as payments are made on time. Instead, the merchant incurs a one-time transaction fee of 2-8% on average. While this fee may be a deterrent to some retailers, BNPL’s option may result in customer acquisition and retention and a higher purchase amount.

Consumer interest loan

The other option, which is the consumer interest loan, involves an interest rate applied to the purchase at the point of transaction, which relieves the business owner of additional costs. This is an attractive option for retailers, but may be less appealing to the buyer.

What are the advantages of BNPL for companies?

BNPL’s Top 10 Benefits for Business Owners:

1. The BNPL provider is responsible for any chargebacks rather than the merchant.

2. The convenience of transparency between the BNPL provider and the business owner via a sales dashboard.

3. BNPL opens your business to new customers who may not have been able to afford your product/service before, resulting in increased sales and increased customer retention.

4. An option to accommodate customers with unexpected or urgent purchases.

5. A new way to buy goods and services, improving your overall brand and customer experience.

6. BNPL helps to target a specific, young and modern clientele.

7. BNPL suppliers accept responsibility for purchase fraud.

8. Reduce buyer hesitation with a convenient and achievable payment option.

9. Consumers don’t have to worry about another credit card in their wallet because everything is done online, through the store and a mobile app.

10. Retailers can provide a complete, branded shopping experience.

What are the different types of Buy Now, Pay Later refund options?

With the booming BNPL sector attracting significant banking revenue and improving the overall shopping experience for many retailers, retailers are choosing to update their Point of sale systems with this new payment option. With so many providers coming into the picture, which BNPL provider should you choose for your business? HHere are five of our favorite options:

Provider Repayment plans APR
To assert POS loans ranging from 1 to 48 months with a limit of $17,500 per loan. 0%
After-payment Customers can make 4 payments over 6 weeks with a down payment (usually 25% of the order) and then payment once every two weeks. 0%
zipper Customers have the option of four interest-free payments over six weeks. A $7 late fee applies for each late payment (this amount may vary by law and state). A transaction fee of $4 is charged to the merchant for each purchase, or $1 per payment 0%
PayPal Clients make four installment payments every two weeks (for a total of six weeks). The first payment is due at the time of purchase. 0%
Sezzle Clients make four payments over six weeks. If you take advantage of the free rescheduling of one of your payments, you can technically pay over 8 weeks. 0%

Most of these providers offer apps that consumers can download to their cellphones or tablets to provide easy-to-access payment options. Common online retailers like Amazon also offer their own buy-it-now and pay-later services.

Final thoughts on BNPL

woman using apple watch to make payment on pos terminal

(Image credit: Getty)

For companies

Right now, merchants have a relatively secure opportunity to increase sales and win new, younger customers through buy-it-now and pay-later services. Retailers should be aware that as this payment method grows, so do the threats of fraud associated with it.

Keep up to date with fraud prevention tools and the latest news so you don’t get caught off guard, and take advantage of giving your customers a new opportunity to spend more and walk away satisfied.

For the customers

It should be noted that the “buy now, pay later” consumer refund method is currently not financially regulated, meaning customers have little protection in the likely event of a financial dispute.

In the UK, the regulations are soon to be introduced in the near future. How quickly this will happen in the US is uncertain, as products and services purchased through BNPL do not fall under the longer term credit products/services regulated by the Truth in Lending Act.

Looking for a POS system supported by BNPL? Check out our guides to choose the best POS systems for small businesses, Point of sale systems for restaurantsand Point of sale systems for retail.