Randy Kohl

Arguably, the biggest trend in all of ecommerce in the last year isn’t crypto. It’s Buy-Now-Pay-Later (BNPL). In 2021, buy-now-pay-later providers processed over $100 billion in Gross Merchandise Value (GMV), in the U.S. alone. Worldwide, GMV came close to half a trillion dollars. Those are startling sums, and the whole of the ecommerce and Fintech industries have taken notice. However, the meteoric rise of BNPL is not without risks and some potential drawbacks. So, let’s take a look at what BNPL is, discuss some of the pros and cons, and define a few best practices for brands rolling out or already offering a BNPL payment method.


Buy-now-pay-later has been a disruptive, “overnight success” that’s been more than a decade in the making. To paraphrase Hemingway, its rise has come very slowly, then all at once. Klarna, far and away the leader in the space, predates Facebook and was founded in 2005. Affirm, which scored a huge win by becoming the default BNPL partner for Amazon, dates to 2012. Afterpay, recently acquired by Block (formerly Square), launched in 2014.

Not to be left out, PayPal recently acquired Japanese BNPL provider Paidy, Mastercard (yes, the same Mastercard that built its business on consumer credit cards) rolled out a BNPL product and began signing up retailers, and Apple has partnered with Goldman Sachs to launch a service tentatively called Apple Pay Later. Given the overall furor over BNPL, it’s quite possible a new industry player was launched, achieved unicorn status, and was subsequently acquired while you were reading this paragraph.


The key selling point of buy now pay later services is that the fees are shouldered by the merchant, not the customer. The sale price of the product is the amount the consumer pays, essentially amounting to a 0% interest loan.

While specific terms can vary by provider, most providers offer a “pay in 4” option, with 25% of the product price due at checkout, and the remaining three installments due at two week intervals. No interest fees are charged, as long as the purchaser makes their payments. If a customer misses a payment, however, late fees are incurred, which can negatively impact a person’s credit rating. Unlike credit cards, making timely payments provides no benefit to the person’s credit rating. More on this later.

BNPL providers make the bulk of their revenue by charging their partner merchants. Terms vary by provider, but in the case of Klarna, they charge a flat fee of $.30 cents plus 5.99% of the total transaction amount. That cost is significant and is higher than most processing fees credit card companies charge merchants. However, at least at present, buy now pay later has proven to be a powerful tool for driving consumer demand. So, merchants of all shapes and sizes are jumping on board despite the high costs.



  • Inclusion is good. Buy now pay later serves as a twenty-first century spin on the layaway plan. This has provided a new payment option to millions of consumers for whom traditional credit cards are not an option for a variety of reasons.
  • Choice is good. BNPL has also found traction with younger generations, particularly millennials and Gen Z, which have tended to shun the use of credit in favor of paying with cash.
  • KPI improvements are better. BNPL has been a boon to sellers. The results indicate merchants offering BNPL as a payment option experience double-digit increases in conversion rates and average order value. No wonder every consumer brand and retailer wants in on the action.


  • The risk of BNPL fraud is real. Most BNPL providers rely on proprietary algorithms, rather than traditional credit checks to verify and approve potential customers. This can open a variety of loopholes that allow bad actors to exploit the system. One example is “soft” identity theft. This is where a scammer sets up a store account under an unsuspecting consumer’s name, selects BNPL at checkout using a prepaid debit card to pay the initial 25% deposit, and then defaults on the remaining payments, leaving the targeted consumer on the hook for the balance.
  • Product arbitrage. Gaming the system has the potential to cause reputational damage to a brand. For in-demand items, like next-generation gaming consoles, a buyer can purchase a product, resell it via a marketplace like eBay, and then use the proceeds to complete their payments while pocketing the difference. This tactic effectively boxes out legitimate consumers from purchasing a product on the open market, and could affect their future purchasing decisions.
  • Over-stretched consumers. A Qualtrics study found that one-third of shoppers that used buy now pay later fell behind on their payments. There’s no doubt that consumers should be responsible for their own financial well being. It’s worth pondering, however, whether a bubble is being created and the AOV and conversion rate gains merchants have seen with BNPL will come at the expense of overall customer lifetime value.



  • Product & cart minimums. Buy now pay later makes a lot of sense for luxury brands and those selling premium priced and big ticket items. It’s operationally easier to apply a payment method across the entire product catalog, but having BNPL as an option for a $10 ‘widget’ devalues the entire brand experience. Factoring in the merchant fees involved, consider placing a price threshold at the SKU or cart-level to ensure BNPL is providing the benefit that’s intended for both your brand and customers.
  • Product returns. About 30% of all ecommerce purchases are returned (versus ~9% of in-store purchases). Consider that BNPL customers have already made a down payment on their purchase, and that you as a merchant will receive payment at about the same time as your customer receives their product(s). This adds another layer of complexity to commerce operations and the already complex process of reverse logistics. Make sure that this scenario is clearly addressed within your overall commerce strategy.
  • BNPL segmenting. It may be worth creating a separate BNPL segment to fit within your marketing mix. As these customers are shopping differently, the timing of promotions, depth of discounting, and mix of offers can be tested to maximize overall value.
  • Don’t forget the data. What is your BNPL partner doing with the data they collect? Are they using it to market against you with competitive products / brands? Are they sharing information on customers that default on their payments? First-party data is priceless, so these, and others, are questions worth asking.