How BNPL is Helping Merchants Grow

Updated on May 17, 2023

At a Glance: Buy Now, Pay Later (BNPL) options are increasingly popular, benefiting both merchants and customers. Typically, customers are given the choice of paying in full at checkout or opting for BNPL alternatives, which include paying in installments over time or in full after 30 days. BNPL’s benefits for customers include reduced credit card usage, affordability, and convenience. For merchants, BNPL eliminates almost all risk, provides a better customer experience, increases sales, attracts new customers, and generates high lifetime value per customer. When choosing a BNPL provider, businesses should consider repayment terms, credit limits, and availability in their region.

One of the greatest advancements of Banking-as-a-Service is the widespread adoption of embedded finance options like Buy Now, Pay Later (BNPL) for healthcare professionals, services providers, and (especially) merchants. BNPL payment options are everywhere these days. Businesses from big box retailers to medical practices are benefiting from the increased flexibility BNPL offers. 

How is BNPL benefiting merchants and their customers, though?

In this post, we’ll detail how BNPL works, how it benefits your customers, how it benefits your business, and how to choose a BNPL provider that meets your needs!

BNPL Demographics

BNPL has been mostly embraced by younger retail shoppers, particularly Millennials and Gen Z, although not exclusively. A Forbes study revealed that BNPL usage has increased by 600% among Gen Z since 2019. Although Boomers and Gen X are also adopting BNPL, the significant rise in usage among younger consumers highlights who mainly uses and gains from the availability of this alternative payment option at the point of sale.

How Does BNPL Work?

So how does BNPL work? Usually, when a shopper is ready to check out, she is given two options: either pay the full amount at checkout, or she can opt for one of the available Pay Later alternatives (such as payment after 30 days or payment in installments over time).

BNPL Purchase Options

BNPL options usually differ slightly depending on the retailer, but they can generally be categorized into three options:

  1. Pay in full after 30 days
  2. Pay in 3 or 4 equal, interest-free installments
  3. Finance for up to 36 monthly payments with minimal interest

Customers who choose to pay in full after 30 days have their card stored on file, and they will be charged 30 days after their purchase. This alternative allows customers who don’t have the funds presently to make a purchase based on the funds that they will have in the future.

Customers who choose to pay in interest-free installments pay for their purchase in 3 or 4 payments, evenly spaced, and taken directly from a stored card. As long as these payments are made on time, customers will not pay any fees or interest for this option.

Customers who opt for longer repayment periods, such as 36 months, pay for their purchase in monthly installments, but with interest. In most instances, the interest rate will be comparable to or lower than the interest rate charged on credit card payments.

All of these options are reasonably affordable for the retailer. Merchants pay a commission of 2-6% to the BNPL provider, as well as a small fixed fee for each transaction.

BNPL for Online Checkout

There are some concerns among retailers that offering a BNPL option at checkout could create obstacles for online customers. However, this is not the case. When making a purchase, customers on your site will proceed as they would with any other shopping experience. They will select the items they want, add them to their cart, and then proceed to checkout.

At checkout, customers will see the standard payment options along with the BNPL option that your business has joined. When choosing BNPL, customers will be asked to enter their card details, just as they would with any other payment method.

BNPL at the Point of Sale

Rewrite without losing meaning: While BNPL is mostly used with online purchases, many brick-and-mortar retailers now offer the option. At checkout, the customer will generate a QR code within their chosen BNPL app. The cashier will scan the code at the point of sale and the BNPL provider will credit the retailer. 

Customers in some countries can get a physical or virtual BNPL card. These cards can be used at retailers that don’t offer/accept BNPL. Similar to a credit card, the purchases are charged to the customer’s account and then are paid off via financing or during the 30 days following the purchase.

Why Do Consumers Like to Buy Now, Pay Later?

As BNPL continues to gain popularity among consumers, it’s crucial for businesses to comprehend what motivates customers to choose this alternative financing option. Recognizing why consumers use BNPL can help businesses capitalize on its popularity.

There are three primary factors driving the popularity of BNPL:

  1. Reduced credit card usage
  2. Affordability
  3. Convenience and flexibility

Let’s examine each of these drivers in more detail.

Declining Credit Card Use

Over time, the popularity of credit cards has dwindled as new payment methods have surfaced. A combination of high interest rates, ineffective rewards programs, and decreasing card limits have resulted in a consistent decline in credit card spending. These factors were further amplified by the COVID-19 pandemic and, more recently, recession concerns. Reduced credit card usage has paved the way for a plethora of alternative payment options, including BNPL.


In general, BNPL is less expensive for consumers than credit cards. Credit card providers make money from interest and late fees. Although high interest rates and costly late fees are advantageous for the credit card provider, they are not beneficial for the consumer. In contrast, BNPL options typically have no or low-interest rates (depending on the BNPL choice) and fees are minimal.

Convenience and Flexibility

As previously stated, credit card usage is decreasing, resulting in fewer people carrying credit cards. This is especially true for physical currency. BNPL, which is app-based, provides customers with a convenient payment option that is accessible through their mobile devices.

BNPL also provides a level of flexibility that is not possible with cards or cash. In-person purchases are approved instantly in real-time, while for preorder purchases, BNPL enables consumers to place an order and pay it off automatically before delivery through automated payments.

How BNPL Benefits Merchants

After examining why customers appreciate BNPL, let’s now consider how it benefits businesses. At the highest level, BNPL eliminates almost all of the risk for businesses. The BNPL provider credits the merchant upfront and assumes the risk that the consumer will not make the payments. This is the most significant advantage for retailers, but it is not the only one. Merchants that offer and/or accept BNPL as a payment option:

  1. Provide a superior customer experience
  2. Witness an increase in sales
  3. Attract new customers
  4. Generate high Lifetime Value (LTV) per customer

Continue reading to learn more about each of these benefits for merchants who accept BNPL.

Better Customer Experience

Nowadays, simple browsing and fast shipping are no longer sufficient to satisfy the high standards of consumers. Customers, particularly younger ones, demand a seamless and delightful shopping experience. As a result, merchants must create a platform that satisfies these expectations, or they risk alienating customers. As previously discussed, BNPL meets these customers’ demands by providing a straightforward, flexible purchasing experience. This, in turn, directly translates into favorable sentiment for the merchants.

Increased Sales

Another customer benefit of BNPL that assists merchants is the increased spending power of consumers. The ability to split large payments into installments makes it easier for them to make significant purchases. Research has demonstrated that the primary reason for cart abandonment is price. By providing installment payment options through BNPL, merchants can overcome sticker shock and significantly boost conversions on high-ticket items.

Attracts New Customers 

Introducing a BNPL option not only affects your current customers but also has the potential to attract new customers. One of the most significant obstacles to online shopping has been the absence of “try before you buy” opportunities. Generally, most consumers prefer to try on shoes or test a product before making a purchase. This concept applies to the majority of online purchases.

While there will never be anything like trying the shoe on in person, BNPL offers the next best thing for consumers. With perks like dedicated customer service and free returns, merchants using BNPL can go a long way to remove the “try before you buy” barrier to entry for new customers who haven’t shopped with you before.  

Increased Customer Lifetime Value (LTV). 

BNPL not only enables merchants to generate additional sales from a broad base of retained customers, but it also provides several benefits that work together to boost the overall Lifetime Value (LTV) for these customers. BNPL provides a positive customer experience that fosters customer retention. It also enables these customers to make larger purchases. When existing customers are empowered to spend more and are inclined to purchase your products, LTV increases. Furthermore, by introducing new customers through BNPL and other benefits, LTV increases even further.

How to Choose the Right Buy Now, Pay Later Provider

By now, it should be evident that BNPL is exceedingly beneficial for both consumers and merchants. However, how can you determine which BNPL provider is the best fit for your business? Like with any significant financial decision, there are various factors and considerations for business owners to contemplate:

  1. What are the repayment terms? – As BNPL plans range from several weeks to several years, it’s essential for businesses to comprehend which repayment options are ideal for them. When selecting which BNPL provider to collaborate with, it’s critical to factor in your average order value (AOV). If you have a higher AOV, choose a provider with more extended repayment terms. If your AOV is lower, partner with a provider that works with installment plans over shorter periods.
  1. What are the credit limits? – Nearly every BNPL provider has a minimum and maximum credit limit. Similar to repayment terms, you’ll want to consult your AOV to better understand the credit limits that are suitable for your business.
  1. Is the BNPL service available in your region? – The BNPL provider you select will depend on your region and/or the market you operate in. As a result, depending on your budget, you may find yourself collaborating with different providers for different markets.

Final Thoughts

There’s no denying that BNPL is swiftly becoming one of the most beneficial payment options for consumers and retailers alike. While consumers enjoy a better customer experience and greater flexibility, merchants are seeing greater retention, numbers of new customers, and revenue. Merchants that adopt BNPL stand to benefit significantly. Those that do not risk falling further and further behind. Seems like an easy choice, no?

Frank Gogol

A seasoned SEO expert, Frank has a long history of working with and for startups. Starting in mid-2018, Frank served as the SEO Strategist for Stilt, a fintech startup that provided fair loans for immigrants in the US and other underserved markets. While with the company, he scaled site traffic from zero to more than 1.5 million unique visits per month, driving the bulk of the company’s lead generation until it was acquired by J.G. Wentworth in December 2022. As employee #5 at Stilt, Frank was witness to, and part of, the successful building and sale of a fintech company, uniquely positioning him to create content for founders about all things startups.