Investigating The Buy Now Pay Later Payment Solution

September 20, 2021
Jump To

In recent years, flexible payment plans have grown in popularity. Many people are now looking for options that don’t require them to have the cash on hand to make an upfront purchase. These so-called “pay later” schemes are surprisingly popular, as many people use them as their primary form of payment. Buy Now Pay Later (BNPL) enables increased numbers of impulse purchases, thus driving eCommerce sales. There’s no surprise why it’s gaining popularity in the world of eCommerce. 

What is Buy Now Pay Later?

It sounds simple enough, right? Customers complete their online transactions and instead of paying their total cart amount right away, they make installments over time. Think about the way a credit card works. Customers can buy a product immediately and worry about paying for it later. BNPL, however, differs from credit card payments in that there’s no added interest. The consumer pays the price in interest-free installments over a designated time period, usually between a month or three. Remember the term “layby”? Layby was a popular choice whereby consumers would be able to place a downpayment on an item in store and pay monthly contributions until the final amount was paid up, and then they received their item. BNPL later is the same, except customers receive the products right away. 

How the BNPL Service Works

There are many different types of payment solutions available, and the pay later payment solution is one of the newest. Pay later payment solutions such as Klarna, which is an European based company, provide consumers with the opportunity to buy items now and only pay for them later. These types of services make it possible for shoppers to purchase products they may not be able to afford otherwise. By the time that the final payment installment is due, the consumer has saved enough money or received another paycheck to cover the cost. This service is an excellent option for those in between paychecks or for those on a tight budget. Due to the economic uncertainty caused by the pandemic, this solution has worked in favor for both consumers who want new products and for eCommerce stores who rely on online transactions.

What’s the Appeal Around BNPL? 

Psychology. Yes, that’s right. The appeal for consumers around the BNPL phenomenon comes down to purchasing psychology. The prospect of immediate gratification incentivizes consumers to convert, to receive the product first and to pay it off in smaller installments. According to CNN, average order values increased by 33% solely due to this option! 

BNPL helps consumers shop online without requiring that they spend one big lump sum. During these trying times, banks are less likely to provide credit. BNPL alleviates the need for further loans, by giving the consumer an immediate solution. BNPL not only helps the consumer by offering flexible payment options, but it also aids online shopping outlets by moving inventory. 

Popularity Amongst Gen Z and Millennials

Buy Now Pay Later solutions have gained popularity particularly with the younger generations. Millennials and Gen Z find BNPL solutions much more appealing than the daunting aspect of accrued interest from using credit cards. An article by CNBC interviewed Millenials and Gen Z about this payment solution and found a few interesting points to note:

  • The majority said they were drawn to the service for their convenience 
  • At least six out of the seven that were interviewed were influenced by peers or social media to start using the platforms and started within the last year
  • Many younger consumers say they appreciate BNPL because they want new clothing or electronics and don’t always have the money to make an upfront purchase 

Let’s return to the idea of purchasing psychology. Behavioral economists confirm that breaking up a larger payment into smaller repayments makes the overall purchase feel less daunting for younger generations. These generations spend more time on social media platforms and are often exposed to the latest and greatest by influencers. As they’re sitting in the front seat of consumerism, they find that the BNPL option allows them to indulge in purchasing goods they might not otherwise be able to afford. 

Pros and Cons of the BNPL for eCommerce

We’ve gone over why this trend is growing for consumers, but what are the benefits and risks for eCommerce brands? Let’s discuss. 


Higher Conversion Rate

According to Statista, in 2020, 88% of online shopping orders were abandoned, which was a 19% increase from 2019. On average, online businesses lose about 75% of their sales due to cart abandonment. While financial strains aren’t the only reason people might abandon their carts, for a lot of them, it is. BNPL also allows consumers to take advantage of any sales and promotional discounts currently offered.

Wider Audience

By allowing consumers to split payments over time, you’re able to attract a wider audience that otherwise might not be able to afford high ticket items. By using BNPL, you’ll likely reach a wider and younger audience.

Affordable, Flexible Payments for High-Value Products

For eCommerce stores who carry particularly high priced items, this solution could have a massive impact on order conversion. 

Higher Average Order Value

Consumers are likely to spend more, knowing they are paying the balance off over an allotted time period. This increases the AOV of consumer purchases.


But just like other forms of financing options, BNPL isn’t without any cons.  

Higher Merchant Fees
BNPL systems can cost you a little more than other forms of credit services, likely around the 2-8% of the purchase mark range.

Integration Issues

BNPL requires technology to function, including integrations in your shop’s checkout flow. It’s not a simple plug and play solution. The specialized tools and technology required by BNPL may incur additional costs. 


Unfortunately, not all brands are able to offer the BNPL option. You might need to meet certain criteria in order to qualify. 

Should You Consider a Buy Now Pay Later Service?

There’s no right or wrong answer here. Start by weighing the pros and cons to understand whether or not this service is beneficial for your business. If you’re concerned about the level of cart abandonment or average order values and you’d like to explore a payment program, provided you qualify, then why not? After all, isn’t being in the online retail world all about trying new technology and making sure that your consumer is at the heart of it all?