What is Buy Now Pay Later ( BNPL )? | Comprehensive Guide

Do you feel the need to buy something but wish you could pay for it later? Well, this facility is no longer a dream. Modern age consumers are resorting to 'point-of-sale instalment loans'; Buy Now, Pay Later, commonly known as BNPL, is a recent trend that has taken the retail market by storm.

Statistics show consumers transitioning to BNPL for everyday purchases via mobile wallets like Afterpay, Klarna, Atome, etc. Therefore, you can expect competitive payment benefits based on whichever service you choose by opting for BNPL.

What is Buy Now Pay Later( BNPL )?

Buy Now Pay Later (BNPL) is a recent trend that acts like a credit card for web and mobile wallets. Most BNPL services offer 0% interest schemes for a predetermined duration. Some BNPL providers choose to provide a more competitive service by never levying late penalties. 

As a consumer, almost anyone can sign up for a BNPL service by simply furnishing basic personally identifiable information and banking integration details. 

With this service, you don't need to provide payslips, documentation, bank statements, etc., which is an added incentive for multiple user demographics who lack definite KYC details. 

For instance, users with part-time jobs and bad credit score-lines are the most likely to apply for BNPL. Plus, nearly 75% of the global BNPL users today are a diverse mix of GEN-Z users and millennials. 

BNPL apps attract these users with multiple EMIs and other lucrative repayment options. The easy availability of services and non-requirement of detailed documentation continue to be the prominent USP of the BNPL model. 

How Does the Buy Now, Pay Later Model Work?

The BNPL model works in a simple, easy-to-understand manner. Majorly, it consists of two primary segments, which revolve around making repayments either manually or automatically. 

1. Manual Repayment Schedules

You can make manual instalment payments directly from the service dashboard. By default, BNPL services offer EMI repayment or full outstanding balance repayment via multiple choices, including banking UPI, credit card, debit card, etc. 

A first-time buyer needs to complete the initial KYC requirements. However, seasoned users can immediately set up their loan repayment schedules and begin instalments. Some BNPL systems even offer multiple EMI scheme durations for further convenience.

For example, Amazon Pay allows you to pay over the following periods: 

  • One month
  • Three months
  • Six months 
  • Nine months

Additionally, there are no set amounts for minimum or maximum purchase thresholds for 1-month and 9/12 month EMI repayment schemes.

2. Automatic Repayment

You can avail automatic repayment in just about any BNPL app by completing a one-time verification. However, Some companies might levy a small refundable charge to enhance the verification procedures. 

The due amount is then auto-debited from your account on the agreed date to ensure hassle-free payments. 

For example, you can sign up for automatic BNPL repayment on Amazon Pay for a small refundable verification fee. 

In detail, let's understand the Buy Now, Pay Later model with an example. 

Let's assume you purchase an air-conditioner from Amazon for Rs 20000. While you can pay with your credit card, you also have the option of BNPL. With this method in tow, you can pay off the outstanding amount in 4 equal instalments of Rs 5000 per month. 

As a customer, you get to choose a no-interest EMI option, which will split the purchase cost over a few months. However, the merchant will have to bear the cost of the EMIs; on the contrary, the benefit is that he gets a loyal customer for his business. 

Now how does payment mode benefit you as a customer? For starters, you get a convenient payment model to pay back the due amount. Secondly, you don't have to worry about paying extra charges via interest, transaction, and processing fees. 

Nonetheless, in case of a delayed payment or non-payment, you would have to bear the brunt of the late fee and any other penalties the merchant might deem fit. However, despite the late fee and penalty charges, the interest rate for a BNPL model is still lower than credit cards, which makes the concept worthwhile and noteworthy. 

Additionally, there are no set amounts for minimum or maximum purchase thresholds for 1-month and 9/12 month EMI repayment schemes.

Types of BNPL

Types of BNPL

When one talks about the types of BNPL models available to the end consumer, three broad categories exist. These are Direct Providers, Facilitators, and Retroactive Providers. 

Let's discuss each of them in detail:

1. Direct providers: 

Direct providers offer point-of-sale(POS) BNPL services as the merchant's end-sale point. The associated financial risk of the POS is borne by the companies that cater to the service.

For example: Klarna, Afterpay, Affirm, etc.  

2. Facilitators

Facilitators work with direct providers to establish merchant relationships. Such facilitators are renowned payment companies, which help merchants capitalize on the existing interest structures to make the most out of the BNPL ecosystem. 

For example: MasterCard, Stripe, and Shopify.

3. Retroactive Providers

Retroactive Providers are financing companies, which offer consumers simple financial payment options for their purchases. Such providers are issuers, who make the financial transactions easier and better. 

For example: Chase, American Express

Why Is BNPL a Game Changer for E-Commerce, Retail, Gaming, Travel, and Food Industry?

Buy Now Pay Later is a game-changing initiative taking the eCommerce, retail, gaming, and travel industries to new heights. BNPL offers a novel financing scheme in a global economy where loan applications are rejected. Instead, consumers have to chase lenders because it is easier than improving their credit score.

Given these services' everyday use, customers opt for BNPL in droves. But, yes, there are some risks with late payment and chasing non-payments, each of which is listed below. 

However, Fintech and merchants benefit from such payments, as they earn late penalties and transaction fees. 

Quantifying payments into smaller, delayed denominations gives consumers an incentive to actively use BNPL or eCommerce, retail, gaming, tourism, and F&B. 

BNPL apps such as PayTM, PhonePe, LazyPay, MoneyTap, CASHe, etc., are further helping customers to standardize the BNPL mode for groceries and other casual/daily expenditures.

Pros and Cons of Buy Now Pay Later ( BNPL )

Like the two sides of a coin, every payment mode has its pros and cons. The BNPL model is no exception to this rule. The pros and cons can be segmented into categories as below: 

1. For Consumers:

Here's a list of the pros and cons for consumers using the BNPL model for their regular purchases. 

Pros:

  1. BNPLs carry more benefits than credit cards, despite the inherent late fines.
  2. You can indulge in high-end consumerism without the need for immediate funding.
  3. Feel free to buy items from your wishlist without opting for loans.
  4. BNPL payment model comes with its 2-step verification, QR codes, and OTPs security details.

Cons:

  1. Late fines can accumulate for excessive consumerism.
  2. Consumers end up spending a lot of money due to immediate funding solvency.

2. For Merchants:

If you are a merchant, you would have the following pros and cons when adopting the BNPL model. 

Pros:

  1. Many buyers would translate into better loyalty levels and higher transaction amounts.
  2. Higher conversion rates for merchants offering BNPL.
  3. Fintech pays the merchants up-front after deducting a small service processing fee.

Cons: 

  1. Accumulated consumer non-payment can lead to partnership hassles with Fintech.
  2. Security challenges can create payment clearance hassles.
  3. Lower credit limit as compared to credit cards.

3. For Fintech

Since Fintech are the final leg of the BNPL model, they have a few pros and cons. 

Pros: 

  1. Fintech receives regular revenues for merchants' increased conversions.
  2. Other revenue channels include interest and other fee income and late payment fees.

Cons: 

  1. Digital lending during a financial crisis can be a challenge for small merchants
  2. It's challenging to track individual loans, especially when they are pushing their credit limit

Difference Between BNPL and Credit Cards

Due to the ongoing social restrictions and global economic conditions, individuals and small business owners face a financial crisis.  Digital lending is critical and should be encouraged, as it provides easy access to capital for needy individuals and businesses. 

Unlike the traditional banking systems, Fintech companies associated with digital lending ensure a simple, streamlined process to avail loans without extensive hassles.

Nonetheless, the associated merchant can't ignore merchant and consumer risks. 

Companies need to streamline their loan underwriting processes and incorporate a feasible recovery mechanism. In addition, significant efforts are required to govern borrowers and build a credit discipline.

Fintech companies need to consider the 'loan stacking' issue when individuals avail of multiple loans through several companies within 36-48 hours. 

Such loans may simultaneously be approved, resulting in a loan beyond one's credit limit. As BNPL platforms and users increase, these, in turn, increase fraud practices, creating a never-ending debt cycle.

Top 8 BNPL Companies

Top 8 BNPL Companies

A few major BNPL players in the payments market demand a mention. As the needs of consumers continue to increase, there is a never-ending need for credit-based payment models, which encourage the very essence of BNPL. 

1. Afterpay

Afterpay is a multi-industry BNPL service that caters to various consumer products, from appliances and electronics to home entertainment, garments, and more.  

It easily integrates with different CMSes and even has an app version that helps merchants boost sales by advertising curated items to a selected few.

Pricing and Other Fees:

  • Setup Fee: Free
  • Annual Fee:  There is no associated annual fee with AfterPay until you continue to pay your dues on time. 
  • Charges on refunds: You get a full refund, depending on the amount released by the retailer
  • Commission per transaction: 3-7% per transaction

Accepted payment methods: 

  • Credit/Debit cards: All major debit and credit cards are accepted, including American Express and bank checking accounts. However, you can't link overseas accounts with your AfterPay account. 

Supported currencies: AUD, NZD, CAD, and USD

Approvals and onboarding time: Within seven business days of requesting

eCommerce platform integration: Shopify, Magento and WooCommerce, and many others

2. Affirm

As a BNPL service, Affirm empowers consumers and retail merchants with its novel 'No setup fee, no hidden/late fee' for everyday shopping. It even offers a virtual card service to simplify seamless BNPL payout. 

Pricing and Other Fees:

  • Setup Fee: Free
  • Annual Fee: Affirm has no associated annual fee until you continue to pay your dues on time. 
  • Charges on refunds: You get a full refund, depending on the amount released by the retailer
  • Commission per transaction: 2-3% per transaction

Accepted payment methods: 

  • Credit/Debit cards: All major debit and credit cards are accepted, including American Express and bank checking accounts. However, you can't link overseas accounts with your AfterPay account. 

Supported currencies: All currencies, including cryptocurrency

Approvals and onboarding time: Up to 21 days or longer on a case-basis

eCommerce platform integration: Shopify, Magento and WooCommerce, and many others

3. Reepay

Reepay is an all-in-one subscription platform offering a seamless payment gateway and BNPL service. It has multiple service packages with variegated features, segregated by retailer business size.

Pricing and Other Fees:

  • Setup Fee: Free
  • Annual Fee: A monthly subscription plan starts at $5.23 per feature per month.
  • Charges on refunds: Same as the levied transaction charges.
  • Commission per transaction: The basic plan is at 7 EUR per month + 0.15 EUR / transaction. Additionally, a standard plan is also available, which costs 19 EUR per month + 0.05 EUR / transaction. If you want to opt for a business plan, you can directly speak to the service provider. 

Accepted payment methods:

  • Credit/Debit cards: Visa Dankort, Dankort, Visa, Mastercard, Maestro, Visa Electron, MobilePay, Viabill, and Forbrugsforeningen

Supported currencies: Supports currencies of up to 160 countries

Approvals and onboarding time: 14 days

eCommerce platform integration: WooCommerce, Shopify, OpenCart, Dandomain, DynamicWeb, Shopware, etc.

4. Atome

You should sign up for Atome if your business is growing and you want a reliable BNPL payment gateway for your customers. It helps you and your customers conveniently track all payments and manage their spending. 

Pricing and Other Fees:

  • Setup Fee: Free
  • Annual Fee: A monthly subscription plan starting at Rp 25.00 and paid per month
  • Charges on refunds: None
  • Commission per transaction: Available upon inquiry 

Accepted payment methods:

  • Credit/Debit cards: All major debit and credit cards

Supported currencies: CNY, HKD, SGD, MYR, IDR, PHP, VND, THB, TWD

Approvals and onboarding time: As soon as possible

eCommerce platform integration: All major eCommerce CMSes 

5. Klarna 

Klarna is not a mere BNPL service. It doubles as an intelligent shopping assistant that helps boost conversions and enables some of the best deals for your customers. Given its simple integrations and user-friendly interface, it is one of the best BNPL service providers. 

Pricing and Other Fees:

  • Setup Fee: $600
  • Annual Fee: A monthly subscription plan starts at $90 per month
  • Charges on refunds: None
  • Commission per transaction: 1.5-3% per transaction

Accepted payment methods:

  • Credit/Debit cards: Feel free to pay with any major debit/credit card, including Maestro, Mastercard, Visa, and Discover.

Supported currencies: CAD, AUD, CHF, EUR, DKK, GBP, NOK, SEK, and USD

Approvals and onboarding time: 7-10 business days

eCommerce platform integration: All major eCommerce CMSes 

6. PayPal

PayPal is one of the oldest digital payment gateway services within the digital world. It offers exceptionally affordable BNPL services to customers and integrates easily with payment systems, helping startups, small-scale, and large-scale retail stores receive payments seamlessly.

Pricing and Other Fees:

  • Setup Fee: Free
  • Annual Fee: 2.9% + $0.30 for domestic transactions

4.4% + a fixed fee depending on the location of the business user

  • Charges on refunds: None
  • Commission per transaction: 1.5-3% per transaction

Accepted payment methods:

  • Credit/Debit cards: eWallets, mobile, debit/credit cards, COD, and every other commonly accept payments system 

Supported currencies: EGP, AUD, CAD, CZK, EUR, and other native currencies in supported countries

Approvals and onboarding time: Immediate, following a one-time flow

eCommerce platform integration: PrestaShop, Shopify, Etsy, WooCommerce, OpenCart, Magento, and other leading as well as lesser-known CMS services

7. Sezzle

Sezzle is one of the best BNPL systems for indemnifying Fintech and merchants from customers that do not pay on time. In addition, it allows consumers to avail of BNPL instead of downpayments.

Pricing and Other Fees:

  • Setup Fee: Free
  • Annual Fee: Free
  • Charges on refunds: None
  • Commission per transaction: 6% plus 30 cents on each transaction

Accepted payment methods:

  • Credit/Debit cards: Debit and credit cards, bank accounts, and pre-paid cards 

Supported currencies: Multi-Currency support available 

Approvals and onboarding time: 4-6 business days

eCommerce platform integration: Shopify, WooCommerce, BigCommerce, Salesforce Commerce Cloud, Magento, 3dCart, CommentSold, Zoey, NopCommerce, Bold Cashier, CommerceV3 (CV3), Mojo, WIX, TireConnect, Workarea, TrueIMS, Aurus, BuyItLive, PunchMark, UltraCart, Prestashop, Cirkuit, and Lightspeed

8. ZipPay

ZipPay is another innovative service that prevents consumer non-payment. It levies the consumer account with $7.95 monthly fees waived by default if the consumer owes nothing.

Pricing and Other Fees:

  • Setup Fee: Free
  • Annual Fee: Free
  • Charges on refunds: None
  • Commission per transaction: $1 service fee

Accepted payment methods:

  • Credit/Debit cards: Debit cards are attached to bank accounts. Credit cards like (till the time they aren't pre-paid) Visa, MasterCard, Discover, and American Express are accepted.  

Supported currencies: Multi-Currency support is available 

Approvals and onboarding time: 10 minutes

eCommerce platform integration: 150+ different CMSes supported

How To Offer Buy Now Pay Later?

Setting up a Buy Now Pay Later service varies from demographic to demographic. For example, every country offers a different payment service, which can be equally hard to integrate in the long run. 

To make the process easier, people often look to service providers like inai, who are experts in the field of integration, given their repertoire of BNPL services and easy-to-integrate methodologies. 

Here are a few ways to offer BNPL services:

As a first step, you should determine the best compatible Fintech partner who can provide you with an appropriate BNPL logic. 

Once you have the logic defined, you can advertise the BNPL payment options so that customers can see them (familiar places include the head section, marque section, etc.). 

It helps customers know from the get-go that easy payment options are available to ease the burden of big purchases. To familiarize your customers with the available options, you should educate them about the BNPL terms on your checkout page. 

Finally, you can track BNPL strategy success and optimize the offered services to increase the conversion rates.

Conclusion

BNPL is influencing consumer mindsets and habits across the globe. As a result, many brands strategically advertise BNPL payment facilities early in the service flow to attract customers. Crafty ad placements have already worked wonders for eCommerce/mCommerce services.

With a secure BNPL setup, Fintech and merchants can protect themselves and their customers from BNPL risks. In addition, by unifying analytics with your service, you can capture and analyze your conversions and fall-backs.

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