Everyone’s buying now and paying later. At least that’s what the prevalence of BNPL buttons on online checkout pages would lead you to believe.

Buy now, pay later is point-of-sale financing that allows consumers to make a purchase and pay for an item or service over a set period of time, often without interest. It’s exploded in the past few years, appealing to consumers seeking quick access to credit or those turned off by credit cards. It’s also attractive to merchants — from retailers to restaurants — gunning to increase a shopper’s basket size or close a sale. 

The payment trend first gained traction in Europe and Australia about a decade ago. In the U.S., BNPL took off with the rise of e-commerce during the COVID-19 pandemic. Consumers stuck at home and flush with cash tried the financing tool to buy clothes or home goods. 

More recently, soaring inflation and high interest rates have inspired some shoppers to tap BNPL for everyday purchases, to spread out payments and avoid interest charges.

Using BNPL at checkout tends to be a seamless process for shoppers. That’s helped fuel its growth, especially with digital native generations that expect such experiences. “Being easy to use does matter when it comes to payment options,” said Sheridan Trent, director of market intelligence at The Strawhecker Group.

Sheridan Trent

Sheridan Trent

Permission granted by Sheridan Trent


Initially, BNPL gathered momentum with millennial and Gen Z consumers, many of whom are turned off by credit cards, then it began drawing in other consumers, too. Nearly one-fifth of consumers have used BNPL during the past year, Federal Reserve Bank of New York researchers said in September. 

How it works

BNPL is essentially the opposite of layaway, where buyers could only take home an item once it was paid off. BNPL enables shoppers to obtain an item right away, and then continue paying it off in the weeks or months that follow. 

Consumers can access BNPL options through online checkout integrations on a merchant’s website or through BNPL providers’ apps or cards. Merchants are willing to pay higher fees for BNPL services than they would for credit card acceptance on the belief that customers will be enticed to spend more and complete the sale.

When a shopper chooses a BNPL company as their payment method at the point of sale, either online or in-store, the shopper gives the BNPL provider personal information such as address, phone number, date of birth or Social Security number. Then, BNPL companies typically perform a digital soft credit check within seconds before approving or denying a shopper for an installment plan.

The version of BNPL that’s most widely marketed by providers is an interest-free, pay-in-4 plan. Those offers allow consumers to make an initial payment when they buy an item, followed by three more payments, typically spread over six weeks. 

For a $100 purchase, for example, a shopper would make an initial payment of $25, followed by three more payments of $25, at two weeks, four weeks and six weeks from the point of sale. Consumers make those payments with debit or credit cards, or sometimes through an auto-pay function tied to their bank account. 

While BNPL companies play up their no-fee offerings, some providers do charge interest fees in certain instances, and some may also charge late fees. 

For instance, San Francisco-based Affirm does far more interest-bearing, longer-term installment loan volume than it does shorter-term, fee-free lending. And its interest rate on the former could be as high as 36%. Pay-in-4 loans made up 19% of Affirm’s gross merchandise volume for the fiscal year ended June 30, according to the company’s annual filing with the Securities and Exchange Commission.

Big players in the market

BNPL’s explosion has drawn a number of competitors from across the world to the market, all eager to grab their share of the pie. That includes pure-play BNPL providers such as Affirm as well as banks, card networks and Cupertino, California tech giant Apple. 


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