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Buy Now, Pay Later

Buy Now, Pay Later, also known as BNPL, is a type of short-term financing arrangement growing in popularity. According to research analytics firm CB Insights, BNPL only represents a small portion of overall spending on payment cards, but it is projected to grow globally by 10-15x its current volume, supposedly topping $1 trillion in annual gross merchandise volume by 2025 and potentially reaching $20.4 billion market size by 2028. And a report by FinMasters indicated that 360 million people used Buy Now, Pay Later services in 2022.

What is Buy Now, Pay Later (BNPL)?

BNPL programs allow consumers to make a purchase and pay for it in installments. A BNPL company will pay the full amount to the retailer, and then the consumer pays the BNPL company back over time. Keep in mind that not all consumers are eligible for this program, and there are often limits on the amount you can spend, so really expensive purchases may not be included in BNPL programs.

Compared to a traditional credit card where a borrower can pay a minimum monthly payment and carry a balance, with BNPL, a borrower pays off the loaned amount for the single purchase, typically in four installments. In many cases, there is also no interest paid to BNPL providers as a borrower would pay with a credit card. In the event of late payment, the company will charge interest.

How does Buy Now, Pay Later (BNPL) work?

When you proceed to checkout, you’ll have an option to split your total purchase and pay a smaller amount immediately, rather than the full amount. If approved, you make a small down payment and pay the rest in a series of interest-free installments. Of course, each BNPL program has its own terms and conditions, but usually they offer short-term loans with fixed payments and no interest (if all the installments are paid on time). You will also know the payment amounts in advance, and each payment will be the same. For example, if your total purchase is €100, you’ll pay €25 at checkout and then three remaining installments of €25, usually over a few weeks or months. Payments are deducted automatically from your debit card, bank account or credit card.

Pros and Cons of Buy Now, Pay Later


  • Interest is usually not charged
  • Fast checkouts and a convenient way to pay for purchases over time
  • Most retailers offer this program at checkout
  • No credit score requirement


  • Some plans charge interest
  • Missed payment usually incurs interest and fee charges
  • Risk that customers will overspend
  • Payments can be difficult to track
  • Customers practically take out a loan with the BNPL provider – late or no payment will be registered with the competent public debt registry and lead to a bad credit score
  • Rewards or cash back earned on purchases can be missed

How do Buy now, Pay Later companies make money?

There are multiple ways a BNPL company makes money. Many companies in the BNPL industry make money on fees they charge to retailers that offer their services. This is a flat fee charged for each transaction made through the platform regardless of the transaction value. Retailers that are willing to pay these fees do so with the hope of increasing sales. A customer may be more willing to make a purchase, especially one with a bigger price tag, if they can pay interest-free over time rather than in one lump sum.

Another way for BNPL companies to make money is through late payment fees. This is one of their main revenue sources. If you miss a payment and the amount of the installment is not paid on time, you will incur additional charges.

Although it is less common, some companies will charge interest to the consumer and do not charge retailers any fees. In this case, a consumer makes a purchase, which they can then pay in installments over time, but including interest.

Who are the biggest players in BNPL?

Some of the big names in the BNPL industry are fintechs. Klarna and Afterpay are the two biggest BNPL companies. Afterpay, one of the pioneers in BNPL according to the Financial Times, was acquired by the payments company Block Inc. for $29 billion in January 2022. Block Inc. is publicly traded. Klarna, however, is currently a private company.

As the BNPL industry grows, so does the competition, and larger companies are entering the market. For example, PayPal introduced its ‘Pay in 4’ BNPL program back in 2020. More recently, Apple launched its own BNPL service called Apple Pay Later, in which it uses its subsidiary Apple Financing LLC as the lender for the loans required for the installment offerings.

Key takeaways

  • Buy Now, Pay Later (BNPL) is a form of short-term financing. These programs allow consumers to make a purchase and pay for it in installments.
  • Generally, BNPL payments are often interest free, but fees and interests will be applicable if you don’t pay your installment on time.
  • The main players in the industry are in the fintech industry. Some examples include Klarna and Afterpay. PayPal and Apple also offer these programs.

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The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Please be aware that facts may have changed since the article was originally written. Investing involves risks (e.g., price volatility, currency or liquidity risk We advise you to only invest in financial products that match your knowledge and experience. Past performance is not a reliable indicator of future results. Markets are volatile and can fluctuate significantly due to economic, political, regulatory, or other developments.

Sources: Bloomberg, CB Insights, Reuters, Nasdaq, Motley Fool, Forbes, MarketWatch, Afterpay, Investopedia, Apple


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