Buy now pay later services are an ideal way for people to buy products and services without having to pay for everything upfront. It’s useful for large purchases and during times when cashflow is scarce. But how popular is it exactly, and what are the benefits on the business side?
To answer the first question, it’s very popular. In fact, the BNPL market was valued at a huge $231.51 billion in 2024, and it’s expected to grow even more, to around $343.52 billion in 2025.
This statistic says a lot about how offering buy now pay later options can boost your business growth and offer a higher degree of competitiveness. But it’s not all sunshine and roses; there are some downsides to BNPL services, and it’s important to understand the full picture. That’s what we’ll talk about throughout this guide.
TL;DR
- BNPL has evolved from a simple payment option to a core feature in modern e-commerce, reshaping consumer expectations and retail strategies.
- For merchants, BNPL is more than just payment facilitation—it boosts conversion rates, increases average order values, and enhances customer loyalty.
- Consumer psychology plays a crucial role; BNPL appeals to instant gratification tendencies and reduces perceived purchase barriers, influencing buying decisions.
- The future of BNPL includes tighter regulation, deeper integration with fintech, AI-driven credit assessments, and global expansion into emerging markets.
- BNPL platforms generate rich data, offering insights into customer preferences, credit behavior, and purchasing trends, which are valuable for personalization and business strategy.
- BNPL aids market expansion by enabling access to broader customer bases, including younger demographics and underbanked populations.
The Evolution of BNPL in E-commerce
When learning the BNPL meaning, it’s useful to learn where it came from to begin with, and it’s certainly evolved considerably over time. These days, sophisticated technology, such as AI and machine learning help in decision-making, when it was purely manual at first.
Of course, as the landscape changes and evolves, it’s important to stay up-to-date with what’s new and understand payment processing statistics and trends. This helps you make informed decisions about whether buy now pay later options are a good choice for your business or not. Yet, when you consider that 14% of Americans used BNPL in 2023, rising from 12% in 2022, it’s certainly something to consider.
From Layaway to Digital Instalments
The earliest deferred payment systems appeared as far back as the 19th century, mostly in furniture and large department stores. However, in the early to mid 2010s, BNPL became extremely popular, giving people a way to purchase large items without having the cash upfront.
The earliest systems involved a layaway program and it was all done manually with physical item storage. These days, APIs are used to integrate with e-commerce platforms, and AI helps in real-time credit decisions.
The Tech Behind BNPL
While buy now pay later solutions have always been popular, the increase in uptake is mostly due to technological advancements. This makes decision-making easier and faster, cutting out the time-consuming manual aspects that occurred back in the day. We’ve briefly touched up on AI and machine learning, but what roles do they play?
Both AI and machine learning algorithms can make extremely fast credit decisions while also spotting any potential fraud at source. Of course, security is key in any payment processing factor, so understanding how BNPL interacts with different secure payment gateways is something to consider if you’re thinking about implementing this service.
BNPL's Global Footprint
It’s easy to assume that BNPL is a Western thing but it’s actually more global than you might realize. However, as businesses offer these services, it’s important to tailor them to specific regulations and needs in each area.
The table below has some useful statistics and information about regions where BNPL is picking up speed.
| Region | BNPL Adoption Rate | Key Players |
| North America | 30% | Affirm, Afterpay, Klarna |
| Europe | 25% | Klarna, Clearpay, Alma |
| Asia-Pacific | 40% | Atome, Hoolah, Afterpay |
| Latin America | 20% | Nelo, Addi, Kueski |
| Africa | 15% | M-Pesa, PayJustNow, Lipa Later |
Emerging Markets and BNPL
As BNPL spreads across the world, it’s a game-changer for businesses looking to tap into emerging markets. This can be a convenient payment method for many in these areas, and it opens up new opportunities that overcome traditional credit system issues. In fact, many countries that have relatively low credit card penetration find BNPL a useful tool, with studies showing that buy now pay later users in India have grown over recent years, to a predicted 100 million by 2027.
BNPL for Merchants: Beyond Payment Processing
It’s one thing understanding this popular model but what about buy now pay later for business use? How does it impact a business owner and what mechanisms are required to implement it? After all, introduction buy now pay later for merchants requires inventory management updates and potentially an overhaul of your accounting system.
It’s also crucial to consider payment processing costs, especially in light of the fact that buy now pay later merchant fees can be higher than regular costs. In the US, this typically ranges from 2% to 8%, with Klarna charging 5% – double the cost of a regular credit card transaction.
Integrating BNPL into Existing Systems
Buy now pay later options require initial investment but open up a range of benefits for businesses.
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Before deciding to try a buy now and pay later system, you’ll likely need to update your POS system. This can be a complex process but by taking your time and absorbing all information beforehand, you’ll have a more positive outcome.
Integrating your current systems with BNPL usually requires API level access to specific e-commerce platforms and inventory management systems. Within this, it’s vital to ensure PCI DSS compliance. However, to make life easier, some buy now pay later providers offer specific kits to help integrate the method into your websites and mobile apps.
You can use the checklist below when looking to integrate BNPL into your current systems:
- [ ] Research and select a BNPL provider
- [ ] Review your current e-commerce platform compatibility
- [ ] Assess your inventory management system
- [ ] Ensure PCI DSS compliance
- [ ] Plan for staff training on the new system
- [ ] Prepare customer communication about the new payment option
- [ ] Set up monitoring and analytics for BNPL transactions
BNPL's Impact on Cash Flow Management
When considering cash flow, BNPL can go either way. Of course, it increases sales because customers don’t need to have the entire amount at the time. Yet, it can also make your finances more complex because you need to work with the timing of payments, along with potential fees and any associated risks. This all needs to be considered when deciding whether to go down the buy now pay later for business route.
In most cases, BNPL providers usually settle with merchants in around 1 to 3 business days, which is faster than many other payment methods. However, there are higher chargeback rates for these transactions compared to credit card purchases, and this can significantly impact cash flow. Of course, too many chargebacks can also tip you into the ‘high-risk’ category, if you’re not there already. This is significant because high-risk businesses face more payment processing challenges than low-risk businesses, making life that little bit harder.
However, at PayCompass, we’re experts in high-risk transactions. We have designed our high-risk merchant accounts to help you with these challenges, including chargeback prevention built in.
The Psychology of BNPL: Consumer Behavior Insights
An often-overlooked part of choosing whether to opt for buy now pay later for merchants is understanding why customers opt for this service in the first place. Let’s take a deep dive into the psychological elements that drive customers toward buy now pay later companies.
Instant Gratification vs. Financial Responsibility
There is a balance between demand for immediate purchases over a period of time and promoting responsible financial behavior. This is one of the biggest barriers to smooth BNPL processes. However, one of the psychological elements of this is cognitive load theory. This suggests that when we break down payments into smaller amounts over time, it increases their attractiveness because we feel they’re simply more manageable.
Another psychological theory is temporal discounting, which affects how we perceive the value of future payments. However, to overcome irresponsible BNPL transactions, gamification is a good option. This can encourage responsible usage and regular, timely payments.
Educating Consumers on BNPL
All buy now pay later companies have a responsibility to ensure that customers understand exactly what they’re signing up for. Transparency is key, and clear breakdowns of final costs and repayment amounts. Interactive calculators are a good starting point as these can help customers understand the full cost and not only the idea of having to pay later.
Some businesses utilize micro learning modules at the checkout to boost understanding of what BNPL means in reality. Of course, all documentation and marketing material needs to use clear language that is easy to understand, and cannot mislead customers in any way. Natural language processing (NLP) can be used here to simplify BNPL terms and conditions.
BNPL and the Illusion of Affordability
Businesses must ensure transparent and easy-to-understand wording in buy now pay later offers and agreements.
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When a large sum is broken down into smaller amounts, it creates an illusion of affordability that may not be there in reality. This can push customers into signing up for something which they can’t really afford and may regret later on. For that reason, everything you provide and use around your BNPL offerings must be clear and transparent.
Price Anchoring in BNPL Offers
How you showcase your BNPL options can influence your customers’ purchasing decisions. For that reason, it’s vital to balance sales effectiveness with overall customer protection. One way is to use dynamic pricing algorithms that can automatically adjust terms based on market conditions at that particular time, along with individual customer profiles. Machine learning is also usable here in helping predict the best presentation of BNPL terms for different price points and products.
The Future of BNPL: Trends and Predictions
It’s clear BNPL is popular, but what does the future hold? Let’s take a look at some factors that may change our perception of buy now pay later or cause it to become even more popular than it is now.
BNPL and Blockchain Technology
Blockchain is most famous for its role in cryptocurrencies but it goes far beyond that. In fact, blockchain technology has the potential to integrate with BNPL symptoms and provide enhanced security and greater transparency.
Because blockchain is decentralized, it offers a faster process with no intermediaries. One element that could be used in buy now pay later functions is distributed ledger technology that could allow for real-time and transparent tracking of transactions.
Smart Contracts in BNPL
Another useful aspect of blockchain is smart contracts. These are automated functions that are created with predefined conditions and they can affect how BNPL agreements are created and enforced once in place. Smart contracts can also automatically execute BNPL payments without the need for an intermediary, while zero-knowledge proofs can conduct credit checks without revealing any sensitive information.
Another potential use is through multi-signature wallets, which can be used to add features akin to escrow, saving time and reducing the possibility of errors.
Regulatory Horizon for BNPL
As buy now pay later companies become more commonplace, regulators incorporate new rules to ensure fairness and security. However, these regularly change because the BNPL landscape ebbs and flows. Of course, from a business point of view, it’s vital to stay up-to-date with these changes and to ensure compliance at every turn. There are several technologies you can use to help with this, including machine learning models. These can predict regulatory trends using global policy patterns. This gives you important information to work with ahead of any major changes.
Automated compliance systems are also useful as they automatically adapt to real-time regulatory changes, taking into account different jurisdictions and their needs. Blockchain can also be used here for identity verification, streamlining KYC (Know Your Customer) procedures.
Cross-Border BNPL Compliance
Many businesses operate across borders and while this has many expansion advantages, it can also create challenges from a regulatory point of view. Requirements vary wildly across the board, so the first action is staying ahead of the curve.
API-based compliance platforms can take a load off by automatically adjusting your buy now pay later terms based on where your customer is located. You can also use natural language processing to look at regulatory texts across different regions and analyze them carefully.
BNPL as a Data Goldmine
When a customer signs up to a buy now pay later agreement and make any number of transactions to pay the amount back, a large amount of data is generated. This information can be used to help in decision-making and personalizing your marketing campaigns. Let’s explore more.
Predictive Analytics in BNPL
Buy now pay later solutions create a wealth of analytical opportunities for businesses to use.
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Data from BNPL transactions can help you personalize marketing campaigns to target specific customer types, and you can use predictive analytics to do this. One option is time series forecasting models, which can predict any seasonal trends in use, while collaborative filtering algorithms are another option. These can recommend products based on a customer’s purchase history, providing important data to shape any future marketing efforts.
We should also add anomaly detection algorithms to this section, as these are effective in identifying any unusual buy now pay later patterns that could indicate fraud or any changes in customer behavior. When you consider the many types of credit card fraud out there, having robust protection is key. Our merchant accounts all come with fraud protection, giving you peace of mind that you can spot any lurking threats before they become a major issue.
BNPL-Driven Product Development
The information you obtain from BNPL transactions can also be used to add extra detail to your product development strategy. Using this can help you create products that can resonate with your customers in the strongest way.
Using cluster analysis can highlight clear customer segments for targeted product development. You can also use A/B testing to look at different product features based on what you learn from BNPL adoption rates. We’ve mentioned natural language processing before and it’s useful here too, especially in identifying potential product improvements.
The Privacy Paradox in BNPL
Of course, whenever there is a large amount of data, there’s a huge responsibility to keep it safe. As a business, you must maintain customer privacy at all costs . There are many regulations that govern this. However, transparent practices are a large leap forward, and these can help build trust with your customers while still allowing you to benefit from data analytics. One such option is homomorphic encryption which allows for analysis without decrypting the most sensitive information.
BNPL's Role in Market Expansion
Using buy now pay later for business use isn’t just about offering another payment method, it can also be used to expand your influence in the market. Offering buy now and pay later can help you reach more customers, some of whom you may have been out of reach previously.
BNPL for B2B Transactions
Buy now pay later is also influencing the B2B (business-to-business) world, changing how businesses interact with suppliers and manage cash flows. In many ways, BNPL could become a new B2B payment solution for your business.
Customizing BNPL for Industry-Specific Needs
Every industry that implements BNPL must do it in a slightly different way to cater to their specific needs. After all, every industry has unique requirements and the good thing about BNPL is that it can be tweaked.
For instance, industry-specific credit scoring models can be used to increase the accuracy and efficiency of risk assessments for niche offerings. You can also look toward API-driven microservices for flexible customization for industry needs. Of course, machine learning is never far away, and algorithms can be used to optimize BNPL terms based on cash flow patterns specific to each industry.
BNPL as a Tool for Financial Inclusion
One key feature of BNPL is that it can help businesses reach underbanked populations, allowing for customer base expansion and increased market reach. To do this, alternative data sources are an option that can be used to create credit profiles for customers, while mobile-first BNPL solutions can reach customers who don’t have access to a bank. Again, blockchain enters the fray, with identity verification simplifying KYC processes in underbanked groups.
Learning Recap
We’ve reached the end of our guide and it’s clear that buy now pay later solutions have come a long way since the days of manual checks. Today, we have sophisticated technologies that can take a lot of the hard work out of the equation, opening up new growth opportunities by offering a whole new payment method.
Of course, it’s vital to ensure that your customers understand the terms of the BNPL agreement and that everything is clear and transparent from the start. The use of data analytics also creates a wealth of opportunities to learn more and target marketing campaigns in the most profitable direction.
At PayCompass, we’re keen to help you grow and develop your business in the most comfortable way possible. If you’re a high-risk merchant, you will be more than aware of the payment processing challenges that no doubt plague your business operations. When you choose us, it is all in the past. Our merchant accounts are designed to overcome these challenges and create a smoother process without worries and uncertainty. All this frees up your time to focus on building your brand and expanding into new areas. Reach out to us today to learn more!
