Katie Fiechter

Last year it seemed like cryptocurrency was dominating the conversation and stole the show for “the next big thing”. This all changed with Buy-Now-Pay-Later (BNPL), earning the title of an “overnight success” with explosive growth during the pandemic. We touched on the pros and consequences of BNPL last year, focusing on how it would impact merchants, as well as best practices and considerations to keep in mind. But how is BNPL impacting shoppers? Is the industry as a whole slowing down?


BNPL is a very attractive payment offering that at first glance may seem too good to be true for consumers. It allows customers to buy a product in the form of a payment plan. All they have to do is take care of the first payment up front and are able to receive the product they’re purchasing with additional payments to follow. BNPL does not require someone to have strong credit or even credit at all and doesn’t help or hurt a person's credit score. It’s not a credit card with interest rates, but an installment loan with fixed payments that can be billed to a debit or credit card with supposedly no interest and no late fees. It’s basically layaway, except shoppers can get whatever they’re buying immediately, instead of having to wait to complete all of the payments.

Most plans have the customer pay in four equal installments, each due two weeks apart, with the first payment collected upfront. Contrary to how BNPL is commonly advertised, Afterpay collected $87 million in late fees in 2021. Each provider has its own set of rules when it comes to late fees and interest so it’s imperative that shoppers read between the lines before they commit to using one of the many BNPL options out there.


KLARNA - Klarna follows the pay-in-4 model with no interest charges, but if a shopper is ten days late on a payment they will charge a late fee of up to $7. They also offer an option to pay in 30 days. Instead of paying at checkout, shoppers can choose the ‘pay in 30’ option and have 30 days after the item has shipped to pay for it.

Merchant examples: Nike, Wayfair, Sephora, H&M

AFFIRM - Affirm offers customers two ways to pay. They follow the pay-in-4 model, as well as offer a monthly payment option. Its interest rates vary with each individual retailer, meaning interest rates will change based on the stores customers are shopping at if a customer misses a payment.

Merchant examples: Amazon, Walmart, Lowe’s, Adidas

AFTERPAY - Afterpay also follows the pay-in-4 model with no interest rates, but they will charge a late fee of up to $8, ten days after the payment date is missed.

Merchant examples: ASOS, Pandora, Dyson, Vans

ZIP - Zip follows the pay-in-4 model but also charges a $1 convenience fee for each payment (essentially a surcharge). They also charge late fees 21 days after payment is due ranging from $5 - $15.

Merchant examples: Bath & Body Works, Delta, Etsy, GameStop

PAYPAL IN 4 - PayPal in 4 follows the pay-in-4 model and does not charge a late fee for missed payments and offers purchase protection.

Merchant examples: Target, Best Buy, Bed Bath & Beyond, Champion

APPLE PAY LATER - Apple just recently announced that they will be releasing their own version of BNPL called Apple Pay Later which will be launched with the new iOS 16 software. So far, all we know is that shoppers will be able to split their payments into 4 installments over six weeks with no interest or fees to pay. Shoppers will be able to keep track of all their payments within their Apple Wallets.


According to a recent survey, 42% of BNPL customers borrow money to make repayments and young shoppers were the most likely to borrow to pay off BNPL purchases. 51% of 18 to 34-year-olds borrowed money to pay off their BNPL debts. Many shoppers are relying on credit cards and other forms of borrowing to pay off what they owe, piling borrowing on top of borrowing, digging themselves into a deeper hole. The appeal of BNPL is that shoppers can get exactly what they want, instantly, after just one small payment. In an instant gratification world, this is the most ideal setup, except for the fact that it’s enabling shoppers to spend money that they don’t have in a time where inflation is at its highest in decades.

Gen Z has really taken a liking to BNPL and are some of the leading adopters of BNPL apps, trailing only Millennials. It feels like getting something for free until the rest of the payments start to roll in and a few small payments that once seemed reasonable, start to feel impossible, particularly when a consumer stacks multiple BNPL purchases over a short period of time. According to a study done by Lending Tree, more than 4 in 10 BNPL users said they have made a late payment on one of their BNPL loans. It’s very easy to fall into the payment trap for something seemingly harmless. Since BNPL loans aren’t regulated like credit cards — and with so many different BNPL players — it’s very easy for shoppers to have multiple loans from multiple companies all due at different times, making losing track of how much a shopper owes to who almost inevitable.

TikTok plays a large role in glorifying BNPL, especially to Gen Zers, which make up 60% of TikTok’s userbase. Many videos are dedicated to clothing hauls, clothing trends, and even specific paid ads from influencers selling the magic of BNPL to their followers. For Gen Zers, who generally don’t have a ton of disposable income, this is influencing them to spend money they don’t have and prematurely allocating future paychecks in order to pay off the debt they’re accumulating.


Currently, none of the major BNPL players — Klarna, Affirm, Afterpay, and Zip — are profitable, leaving their merchant clients wondering if it’s worth it for them to be paying hefty fees for sales. It’s a bit of a catch-22 situation for merchants because they are getting charged anywhere between 4 and 9.5% of the purchase amount by the BNPL firms, but BNPL is helping generate sales and influencing shoppers to spend more than they typically would, which is great for businesses but is ultimately hurting young shoppers.

The industry as a whole is starting to slow down since the rise of the pandemic. Data from Bank of America shows that global BNPL app download growth slowed to 21.4% in the first quarter this year, from 36.2% in the fourth quarter. BNPL flourished during a time when interest rates were low, and consumers had nothing better to do during the pandemic than shop online. With consumers starting to spend less and interest rates starting to rise, it’s very possible that BNPL will continue on a trend of slow growth.