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

Buy Now, Pay Later (BNPL) is a payment trend in eCommerce that’s on the rise, and now it’s making its way into physical stores. In this blog, we’ll explore what BNPL is, its origin story, its trajectory into brick-and-mortar settings, the key players in the field, and the benefits it brings to businesses and consumers alike.

The checkout stage stands as a pivotal moment in the commerce 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 that demonstrate BNPL is continuing to grow: 

• 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 of $3.27 trillion USD by 2030. 

  • There are 79 million BNPL users in the US, 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?

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.

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.

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 your business.

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.

In a groundbreaking move reported by Chain Store Age, Adyen — a trusted commercetools partner — has teamed up with Klarna to bring BNPL functionality into physical stores. This collaboration exemplifies the growing trend of phygital (physical + digital) commerce, bridging the gap between online and offline shopping experiences. By integrating Klarna’s BNPL solution into Adyen’s unified payment system and point-of-sale (POS) integration APIs, merchants can now seamlessly offer flexible payment options in-store, just as they do online.

Here’s how it works: Klarna’s BNPL solution is now embedded directly into Adyen’s payment terminals. In physical stores, customers can choose Klarna’s deferred or installment payment plans with a few simple taps — mirroring the ease and simplicity of online transactions. This makes BNPL as accessible in brick-and-mortar locations as it is on eCommerce sites, creating a truly omnichannel shopping experience.

So, what sets Adyen and Klarna's in-store BNPL solution apart from traditional installment plans? Unlike traditional in-store installment plans, which may require manual paperwork, lengthy approval processes or limited flexibility, the integration of Klarna’s BNPL at checkout is instantaneous, digital and integrated directly into the point-of-sale system — which in turn can be seamlessly linked to the retailer’s eCommerce platform. Customers can select their preferred payment plan in real-time, with clear terms displayed on the terminal, offering them immediate access to flexible payment options with zero hassle.

Why this matters:

• Boosts in-store conversions: Offering BNPL at checkout reduces purchase hesitation, encouraging customers to complete their transactions right then and there.

• Higher average order values (AOV): The option to pay in installments often motivates shoppers to spend more than they initially planned.

• A seamless omnichannel experience: By integrating BNPL into both digital and physical channels, businesses can cater to customer preferences at every touchpoint, providing flexibility wherever and however the transaction takes place.

As retailers continue to innovate, the ability to offer BNPL in physical stores transforms purchasing decisions, making flexible payments an essential part of any omnichannel or phygital commerce strategy.

Several companies have seen tremendous success by adopting BNPL:

Sephora
A trailblazer in beauty retail, Sephora partners with Klarna to offer BNPL options both online and in-store. The flexibility allows customers to indulge in high-value purchases like luxury skincare and makeup without upfront financial strain. 

Peloton
Peloton leverages Affirm’s BNPL services to make its premium fitness equipment more accessible. Customers can spread payments over time, enabling the brand to attract a wider audience and maintain high customer retention rates.

Macy’s
Macy’s integrated BNPL through Klarna and Adyen, offering installment payment plans across its vast range of products. This implementation has not only enhanced the shopping experience but also driven higher AOV and reduced cart abandonment.

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 listicle to integrating BNPL into your eCommerce platform using composable commerce principles:

1. Assess your platform's capabilities and requirements 

Identify any gaps or limitations that may need to be addressed to support BNPL functionality.

2. 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. 

3. 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 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.

4. 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. 

5. 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.

6. 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.

7. 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.

8. 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. 

The evolution of BNPL — from eCommerce to physical stores — reflects the growing demand for flexible, transparent payment options. With platforms like Adyen enabling seamless integration of Klarna’s BNPL into both online and in-store channels, businesses can deliver the ultimate shopping experience and unlock new opportunities for growth.

Ready to take the next step? Learn more about how you can leverage composable commerce to easily adopt new payment methods and much more by downloading our white paper Why composable commerce will change the way you run your business.