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Buy now pay later: Meaning, how it works, what it costs, and how to offer it in your store
Buy now pay later (BNPL) is a type of digital installment financing that allows shoppers to split their payments into partial segments. The store gets the full payment upfront by the payment provider, and they take care of the partial payments.
This is the ideal BNPL flow:
1. Shopper picks BNPL at checkout
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2. Provider runs a soft credit check
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3. Approval comes back in seconds
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4. Provider pays your store (minus commission)
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5. Shopper repays the provider in installments
What are the common BNPL plans?
Most buy now pay later offers fall into three plan types:
Pay in four
This is the plan most shoppers know. The shopper pays a quarter of the total at checkout and the remaining three equal payments every two weeks.
Pay in 30
Some providers let the shopper pay the full amount after a short wait instead of in parts. For example, the shopper receives the item and pays the full price about a month later.
Monthly installment plans
Depending on the cost of the products, these payments spread over months, or sometimes even years.
Buy now pay later vs. credit cards
BNPL and credit cards are often compared side-by-side due to their financial nature of letting shoppers defer payments for purchases.
Currently, credit cards still hold more payment usage when compared to BNPL. Their market share for ecommerce payments accounts to 16%, while BNPL is at just 6%.
However, BNPL is growing rapidly with a massive CAGR of 23%. Market forecasting studies reveal BNPL is estimated to grow from USD 54.56 billion in 2026 to USD 286.02 billion by 2034, making it impossible for businesses to ignore.
Here are some ways they both differ:
Feature | BNPL | Credit cards |
How it works | Split a purchase into installments | Borrow up to a set credit limit |
Repayment | Usually fixed installments over a short period | Minimum monthly payment or full balance |
Interest | Often interest-free for short-term plans | Interest may apply to unpaid balances |
Credit check | May involve a soft check or other eligibility assessment | Usually requires a credit assessment |
Approval | Often quick at checkout | Requires card application and approval |
Credit limit | Set by the BNPL provider, purchase, and eligibility | Set by the card issuer |
Fees | Late fees may apply, depending on the provider | Annual, late-payment, and other fees may apply |
How does BNPL work for ecommerce stores and its customers?
The customer's perspective
For the shopper, buy now pay later feels more like picking a payment method at checkout. The difference is that the price gets split into smaller payments and is collected by a payment provider, not the store they purchased from.
Before the shopper is approved for BNPL, the provider runs a soft credit check, and then they're shown different plans for their installments.
They pay for the first installment, which is usually due at checkout, and get the order right away.
The ecommerce store backend
The ecommerce business partners with a payment gateway. When a shopper checks out, the payment provider gives the ecommerce business the order amount in full minus its fee.
The provider takes on the credit decision and the repayment, so ecommerce store owners don't have to chase any installments.
BNPL can get confusing when a product is returned. Since returns are handled by the online stores, shoppers approach the ecommerce business, even though their payments are handled by a different party.
Is offering buy now pay later worth it for your store?
Buy now pay later comes with its own set of perks and disadvantages. While it is appealing to younger shoppers and offers the much-needed flexibility to encourage purchases, it can come with a few added costs.
Profitability
Data from Stripe and Affirm confirms that using buy now pay later can increase revenue by 14% and average order volume by up to 85%. While that supports higher profits, BNPL transactions cost more (1.5% to 7%) than regular credit and debit card payments (1% to 3%).
Since BNPL encourages impulse purchases, it also opens doors to a higher risk of returns. With cash flow running between three parties (the online store, the payment provider, and the customer), coordinating a return is highly complex. The store owner has to inform the payment provider to pause, adjust, or cancel future installment schedules.
If any part of this flow fails, customers might end up getting billed even after returning the product. In addition to this, the higher payment processing fee of BNPL, which is usually non-refundable to ecommerce stores, lowers profits.
Purchase friction
Statistics reveal that 45% of people choose BNPL due to its user-friendly setup, and 44% say it is more flexible than credit cards. Other top reasons include lower interest fees, easy approval process, no-interest options, and a solution to credit card issues.
All of these point toward lowering the purchase friction from the final click between checkout and buy. With cart abandonment being one of the top reasons ecommerce businesses loose sales, flexible payment options like buy now pay later certainly remove the added hiccups within the buyer's journey.
Third-party involvement
Most online stores partner up with a payment provider for facilitating BNPL in their sites. While this is lowers the hassle of handling payments, it also means shoppers are introduced to another party in their journey. However, since the sale occurs directly through the ecommerce store, it will remain responsible for any issues that occur from the payment provider's side.
How to offer buy now pay later in your store
Here's a step-by-step flow on implementing buy now pay later in your ecommerce store:
Step | Action | What to do |
1 | Pick a provider | Use the questions earlier in this guide: order value, platform support, margins, and country. |
2 | Apply or switch it on | Enable it through your payment gateway or the provider's own merchant sign-up. |
3 | Set order limits | Decide the smallest and largest orders you'll offer it on. Monoprice shows financing on orders above $50. |
4 | Add messaging | Show the installment amount on product pages as well as checkout. |
5 | Test end to end | Place a test order, then process a test refund. |
6 | Write a return policy | Tell shoppers how refunds work on BNPL orders and how long they take. |
7 | Review after 30 to 60 days | Compare conversion, order value, and returns for BNPL orders against your break-even sheet. |
Conclusion
Buy now pay later can widen your audience and decide how much they put in the cart. If you are still unsure, start the option with your highest cost products first by partnering with a reliable provider and review the results before implementing it across your catalog.
Divyashree DuraiDivyashree Durai is a content marketer at Zoho Commerce, a key product within Zoho's finance suite. As the lead voice behind the platform's Academy blogs, she draws on extensive industry research and close collaboration with the product team to deliver practical, research-informed insights that support meaningful growth for online businesses. Her work spans a wide range of ecommerce topics, including digital selling trends, global market shifts, business strategy, and the core fundamentals shaping modern commerce.