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

Klarna: Buy now pay later
(Image credit: Klarna)

To attract a wider reach of customers, many retail business owners with POS systems are adopting a Buy Now, Pay Later (BNPL) payment model. The BNPL method has been evolving in big part due to changes set on by COVID-19 and the increase we have seen in online shopping.  

So what exactly is BNPL for business, and how can it help 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 by merchant services giant Worldpay, as noted by, “BNPL is now the fastest-growing online payment method – accounting for more than 5% of all ecommerce spending. This has seen the BNPL market treble in size in 2020, with 5 million people using BNPL since the start of the pandemic.” 

This payment method allows consumers to spread out the cost of paying for their goods and services, typically over the span of six week in four equal payment instalments. The period of time to pay back the money and the payment instalment amount can vary. 

At first glance, this appears similar to layaway, or just using a credit card. So what is the difference? Well, one big difference is many BNPL options come without interest. Another point of note is the retailer requires that the consumer select a payment option up front, for example, six payments on a certain date, predetermined with the purchase. 

As a retail owner or manager, you simply can’t ignore this shift in payment method as it offers financial inclusivity to those who need help spreading out the cost of their payments without the added interest. 

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(Image credit: Stripe)

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

Other popular financial tech moguls such as PayPal, Amazon, and Apple have also jumped on the bandwagon and begun adapting their own forms of BNPL to stay up with the competition.  

Buy Now Pay Later, representative image

(Image credit:

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

These options have dissolved in big part due to the increase of credit card use. Retailers adopted their own versions with store credit cards often pushed at point of sale which allows the store to control the consumer experience more and build on brand loyalty with additional purchases. explains that key elements of BNPL are typically smaller purchases, and no credit check or traditional underwriting. BNPL services do not share user data with credit bureaus, thus this debt is not available to creditors. 

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

How does BNPL work for businesses? 

BNPL is a service provided by a third-party supplier which gives customers an alternative payment option upon checkout. Here is a quick overview of the process. 

1. The customer purchasing from you is required to pass a quick credit check.

2. Then, the BNPL provider pays the retailer owner (you) the full amount.

3. The customer is required to pay the third-party service provider back over time in a series of instalments.

4. The credit check is not in depth and does not affect the purchaser’s credit score. 

The time frame and percentage of the instalment payments is determined by which third-party service the retailer chooses to incorporate into their POS system. Favourite BNPL providers include Clearpay, Laybuy, PayPal and Klarna. 

Some providers offer a set number of payments, such as PayPal's 'Pay in 3' process, whereas others allow their customers to choose how much they want to pay over a three to twelve month time period. 

Types of BNPL service options for retailers

Klarna: Buy Now Pay Later provider app on mobile screen

(Image credit: Klarna)

There are two types of BNPL service options for retailers to consider: a merchant transaction fee loan, and a consumer interest loan. 

Merchant transaction fee loan

With a merchant transaction fee, the customer is not charged any interest to 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 can be a deterrent to some retailers, the option of BNPL can lead to customer acquisition, retention, and higher purchase amount.

Consumer interest loan

The other option, which is consumer interest loan, involves an interest rate applied to the purchase at the point of transaction, resulting in the business owner being relieved of additional fees. This is an appealing option for retailers but can be less attractive to the shopper. 

What are the benefits of BNPL for business? 

The top 10 benefits of BNPL for businesses owners: 

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

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

3. BNPL opens your business to a new customer base who may not have been able to afford your product/service before, leading to more sales and increased customer retention.

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

5. A new way to purchase goods and services, enhancing your overall brand and customer experience.

6. BNPL helps target a specific, younger, modern customer demographic. 

7. BNPL providers accept the liability of fraud of the purchases.

8. Reduce shopper hesitation with a convenient feasible payment option.

9. Consumers do not need to worry about another credit card in their wallet as it is all done online, through the store, and a mobile app.

10. Retailers can provide a well-rounded, branded shopping experience.

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

With the booming BNPL industry attracting significant bank revenue and enhancing the overall shopping experience for many retailers, retailers are choosing to update their POS systems with this new payment option. With so many vendors entering the scene, which BNPL provider should you choose for your business? Here are five of our favorite options: 

Swipe to scroll horizontally
Provider Repayment PlansAPR
Affirm POS loans ranging from 1 - 48 months with a limit of $17,500 per loan.0%
AfterpayCustomers can make 4 installment payments over 6 weeks with one down payment (typically 25% of the order), and then a payment once every two weeks.0%
Zip Customers have the option of four interest-free payments over six weeks. There is a $7 late fee for each late installment payment (this amount may vary by statute and state). A $4 transaction fee is assessed to the merchant for every purchase, or $1 per payment0%
PayPal Customers make four installment payments due every two weeks (for a total of six weeks). The first payment is due at the time of purchase.0%
SezzleCustomers make four installments over six weeks. If you take advantage of the free reschedule of one of your payments, you can technically pay over 8 weeks.0%

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

Final thoughts on BNPL

woman using an apple watch to make a payment on a pos terminal

(Image credit: Getty)

For businesses

At this point in time, merchants have a relatively safe opportunity to increase sales and gain new, younger customers with the buy now pay later services. Retailers should be aware that as this method of payment grows, so will the threats for fraud connected to it. 

Stay up to date on anti-fraud prevention tools and news to avoid being caught off guard and enjoy offering your customers a new opportunity to spend more and leave satisfied.

For customers

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

In the U.K., regulation is soon to be introduced in the near future. It's uncertain how quickly this will happen in the U.S. however as the products and services purchase through BNPL are not within the longer-term credit products/services remit regulated by the Truth in Lending Act.

Looking for a POS system supported by BNPL? Take a look at our guides to choosing the best POS systems for small businessPOS systems for restaurants, and POS systems for retail

Erin Gregory

With over 13-years-of-experience in the marketing, public relations and non-profit fields, Erin is a driven copy and content writer, digital designer, strategic planner and public speaker. Throughout the course of her career, Erin has managed multiple teams, bringing sales and marketing success to non-profits and for-profit organizations. She brings empathetic, devoted leadership to the team, drives growth through tactical thinking and a consummate work ethic.