Buy Now Pay Later: how it works

Delaying payments for online and offline purchases into a few installments and without interest. That's the purpose of Buy Now Pay Later, a payment installment system that has emerged in recent years to leverage the growth of e-commerce and to provide an increasingly seamless user customer journey. Today, it continues to evolve. Let's find out how.

What is Buy Now Pay Later?

Buy Now Pay Later (BNPL) is a short-term financing method that allows consumers to purchase a product, online or offline, paying an initial installment at the time of the order and subsequent ones, typically 30 days apart. 

This installment system is now adopted by numerous e-commerce platforms and physical stores aiming to boost sales, increase average receipt and, at the same time, offer a more flexible payment mode to their customers. 

Buy Now Pay Later is provided by specialized companies, often fintechs, responsible for developing the technology, providing the financing, and supporting the seller throughout the system adoption process in their physical or digital store. 

In return for this service, retailers are charged a small fee while, typically, the buyer isn't charged interest, although fees may be applied in case of late payment installments.

The Buy Now Pay Later Market Worldwide

This innovative installment payment system is active in both B2C and B2B markets. The former is already well-established, with numerous active players and various provisioning methods, while the latter is still taking its initial steps, but outlooks are indeed promising. 

The data agrees and outlines a rapidly growing trend. According to Kaleido Intelligence, by 2025, consumer spending using these types of financing on e-commerce platforms worldwide will increase by 92%, rising from $353 billion in 2019 to at least $680 billion in three years. 

The trend is prevalent everywhere, especially in Sweden and Germany, leading the way in Europe, with a very high number of transactions made through this payment method and home to the most relevant players in the industry.

Buy Now Pay Later: How it Works

How does Buy Now Pay Later work in practice for those wishing to make a purchase? Every market player has its unique features but, generally, the process is straightforward, specifically to create a frictionless and intuitive customer experience. Here are the steps:

• The customer has shopped on the merchant's e-commerce site or in a physical store and is ready to pay. At check-out, he can choose the preferred payment method, which will include, along with classic credit and debit cards, the Buy Now Pay Later option.
• The customer who wants to spread out his purchase will have to enter personal details directly on the payment screen and create an account linked to the BNPL service.
• The customer is presented with a payment plan, which may vary based on the provider. Typically, it involves payments in 3 or 4 installments, with the first one due immediately and the subsequent ones charged every 14 or 30 days directly to the paying method linked to his account.

What are the Benefits for Buyers and Sellers?

The benefits of this innovative service are undoubtedly diverse, both for buyers and sellers. 

In particular, buyers leveraging payment installment will benefit from:

• Zero fees and interest: Buy Now Pay Later is essentially an interest-free loan.
• Installment payments: spreading the total amount over time makes purchases more convenient and financially sustainable, provided they're part of an informed financial plan.
• Improved customer experience: the installment service is fully integrated into the seller's e-commerce and physical store, making the user experience streamlined and pleasant.
• Maximum flexibility: often, BNPL providers offer various payment plans to cater to every customer need.
• More high-value purchases in less time: being able to pay in small installments allows buyers to place orders of greater overall value without immediately impacting their wallets.

Buy Now Pay Later is also advantageous for retailers who, for a commission around 5%, will find:

• Increased loyalty: offering more flexible payment methods means meeting the user's needs, enticing them to return to the store.
• Growth in working capital: BNPL providers advance part of the total amount owed by the buyer to the merchant, increasing the retailer's overall liquidity.
• Sales growth: current data indicates that BNPL allows for a sales increase of 20% to 40%, an excellent opportunity to grow business operations.
• Product up-selling and cross-selling: by paying in small installments, customers can more easily increase the number of products at check-out or select higher-value items.
• Decrease in abandoned carts: an undecided customer faced with a high final cart price will be reassured by the option to spread out the amount, ensuring higher conversion rates for the seller.

Expectations for this type of service are high. Its success is closely linked to consumer inclinations, always seeking new ways to shop conveniently, and the ability of Buy Now Pay Later providers to properly promote the benefits of this solution to buyers and merchants. One thing is for sure, Buy Now Pay Later is now a reality and growth prospects are numerous: a trend to seize immediately.

Do you want to be among the first sellers to experience the benefits of this solution? Discover Opyn Pay Later!