Why is Buy Now, Pay Later on the rise?

An evolution in payment methods: From installment buying to the huge rise of Buy Now, Pay Later

Hassam Hameed headshot
Hassam Hameed
Product Marketing Manager, commercetools
Published 19 March 2024
Estimated reading time minutes

Buy Now, Pay Later (BNPL) is a payment trend in eCommerce that is on the rise. Find out what BNPL is, its origin story, growth trajectory, the key players, and what it means for both businesses and consumers.

Why is Buy Now, Pay Later on the rise?

The checkout stage stands as a pivotal moment in the eCommerce customer journey, where potential buyers may or may not turn into confirmed customers. That's why it's crucial for businesses to offer multiple payment options to make transactions as easy as possible. Gone are the days when consumers were confined to conventional methods like credit/debit cards or PayPal. We now exist in an era abundant with alternatives, including digital wallets, one-click checkout and in-app purchases. Among these innovations is "Buy Now, Pay Later" (BNPL) services, which have recently enjoyed a meteoric rise in popularity.

As a significant trend in the financial and eCommerce sectors, here are some key statistics about BNPL: 

According to Statista:

  • There are currently around 360 million BNPL users globally with an expected increase to 900 million users by 2027.

A report by Exploding Topics asserts that: 

  • The BNPL market is valued at over $500 billion USD, with a forecast to reach $3.27 trillion USD by 2030. 

  • In the US, there are 79 million BNPL users, representing around 22% of all BNPL users worldwide.

  • PayPal Credit is the leading BNPL service in the US with 34.6 million users, followed by Klarna with 7.9 million users.

These findings highlight the growing adoption of BNPL services globally, indicating a shift in consumer payment preferences towards more flexible and convenient payment options. So, should you jump on the BNPL bandwagon?

What is BNPL and where does it come from?

BNPL is a payment method that allows consumers to make purchases and defer payments for their goods or services over time, typically in multiple installments. Why does this sound familiar? It's because it is! Installment payment plans have been around for years but were typically in-store and for larger-ticket items, like furniture and appliances. BNPL brings this concept into the 21st century by being offered in digital stores and for any product or price. 

With BNPL, shoppers can complete their transactions at the digital point of sale and choose to spread the cost of their purchase into smaller, more manageable payments, instead of paying the full amount upfront.

Key characteristics of BNPL include:

  • Deferred payment: BNPL allows consumers to defer payment for their purchases, often without incurring interest or fees if payments are made on time.

  • Installment plans: BNPL services offer flexible installment plans, allowing consumers to split their total purchase amount into equal payments over a specified period, such as weekly or monthly installments.

  • Convenient checkout experience: BNPL integrates seamlessly into the checkout process of online and in-store transactions, providing consumers with a convenient and frictionless payment option.

  • No traditional credit checks: Unlike traditional credit cards or loans, BNPL typically does not require a traditional credit check for approval, making it accessible to a broader range of consumers.

  • Digital platforms and mobile apps: BNPL services are often accessible through digital platforms, mobile apps and eCommerce websites, enabling consumers to manage their payments and track their installment plans online.

  • Partnerships with retailers: BNPL providers often establish partnerships with retailers and eCommerce platforms to offer BNPL as a payment option at checkout, enhancing the shopping experience and increasing conversion rates for merchants.

Popular BNPL providers include Afterpay, Klarna, Affirm, Sezzle and Quadpay, among others. These companies offer BNPL solutions integrated into various retail sectors, including fashion, electronics, beauty and home goods, catering to the diverse needs and preferences of consumers.

How does BNPL benefit you and your customers?

The newfound popularity of BNPL services is thanks to the myriad benefits they offer to consumers. One of the most significant advantages of BNPL is its interest-free installment plans for consumers who make timely payments, eliminating the need for costly interest charges commonly associated with credit cards and traditional financing options. This transparent pricing structure provides clarity and predictability for users, enabling them to budget effectively and avoid accumulating debt. 

Because BNPL services seamlessly integrate with leading eCommerce platforms and retail websites, streamlining the checkout process and enhancing the overall shopping experience for your customers. With just a few clicks, shoppers can select BNPL as a payment option and complete their purchases without the hassle of entering credit card details or navigating through multiple payment screens. This frictionless payment experience reduces cart abandonment rates, which increases conversion rates for you.

Unlike traditional financing options, BNPL services offer consumers greater flexibility when it comes to returns and exchanges. In the event of a return or exchange, shoppers can easily coordinate with the merchant and BNPL provider to adjust their payment schedules or receive refunds for returned items. This flexibility alleviates concerns about being locked into payment plans for products that no longer meet their needs or expectations, enhancing consumer confidence and trust in BNPL as a viable payment solution.

So, what's in it for you as a digital retailer? BNPL services have been shown to significantly boost conversion rates and average order values for eCommerce businesses. By offering shoppers the option to defer payment or split their purchases into manageable installments, you can reduce purchase barriers and encourage more buying. 

Additionally, the transparency and affordability of BNPL installment plans can incentivize consumers to spend more on their purchases, driving up average order values and increasing revenue for merchants. Moreover, the ability to spread payments over time reduces the financial strain on customers, leading to higher levels of satisfaction and repeat business.

How do I actually implement BNPL?

With composable commerce, you can implement any feature you want, whenever you want, and BNPL is no different. Composable architecture, a modular approach to building eCommerce platforms, offers flexibility and scalability, making it well-suited for integrating innovative payment solutions like BNPL. 

Here's a step-by-step guide to integrating BNPL into your eCommerce platform using composable commerce principles:

Assess your platform's capabilities and requirements 
Identify any gaps or limitations that may need to be addressed to support BNPL functionality.

Select a compatible BNPL provider
Research and select a BNPL provider that aligns with your business objectives, target market and technical requirements. Consider factors such as integration ease, supported geographies, pricing structure and customer service quality. 

Integrate BNPL APIs or SDKs
Work closely with your chosen BNPL provider to integrate their APIs or SDKs into your eCommerce platform. Leverage composable commerce principles to modularize the integration process, allowing for flexibility and scalability. Ensure seamless communication between your platform and the BNPL provider's systems to facilitate transaction processing and data exchange.

Customize the BNPL user experience
Tailor the BNPL user experience to align with your brand identity and user interface (UI) design standards. Customize the checkout flow to incorporate BNPL as a payment option, providing clear and intuitive instructions for shoppers to select BNPL and complete their purchases. 

Implement BNPL pricing and promotions
Configure pricing and promotions for BNPL transactions based on your business model and partnership agreements with the BNPL provider. Determine the installment plans, interest rates and fees associated with BNPL offerings, ensuring transparency and compliance with regulatory requirements. Leverage composable commerce capabilities to dynamically adjust pricing and promotions based on user segments and purchasing behaviors.

Test and iterate
Conduct thorough testing of the BNPL integration to ensure functionality, reliability and security. Test various scenarios, including successful transactions, failed payments and refund processing, to identify and address any issues promptly. Iterate on the integration based on user feedback and performance metrics, continuously optimizing the BNPL experience for your customers.

Monitor performance and analytics
Monitor the performance of your BNPL integration using analytics and reporting tools integrated into your eCommerce platform. Track key metrics such as conversion rates, average order values and customer satisfaction scores to assess the impact of BNPL on your business outcomes. Use data-driven insights to refine your BNPL strategy and drive continuous improvement.

Stay compliant and up-to-date
Stay informed about regulatory requirements and industry standards related to BNPL services, ensuring compliance with consumer protection laws, data privacy regulations and financial licensing requirements. Regularly review and update your BNPL integration to incorporate new features, security enhancements and best practices recommended by the BNPL provider and regulatory authorities.

By following these steps and leveraging the flexibility of composable commerce, you can successfully implement BNPL functionality into your eCommerce platform, providing shoppers with a convenient and flexible payment option while driving business growth and innovation. And with all the advantages this feature gives to you and your customers, why wait?

To learn more about how you can leverage composable commerce to easily adopt new payment methods and much more, download our white paper Why composable commerce will change the way you run your business.

Hassam Hameed headshot
Hassam Hameed
Product Marketing Manager, commercetools

Hassam has been in the commerce space since he graduated university, loving the fast pace and modern way of working with tech companies within commerce. He started as a recruiter, but the curiosity of understanding what every department does brought him to product marketing as it sits right in the middle of sales, marketing and product.

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