Accepting a variety of payment options is one of the most important things you can do to generate more sales. Offering more payment options can reduce friction for customers at checkout, help increase conversion rates and average order values, and protect businesses from repayment and fraud risk by allowing them to get paid upfront for purchases their customers will be paying off over a longer period of time.

One payment option that has gained popularity in recent years is buy now, pay later (BNPL). Buy now, pay later is projected to account for about US$438 billion (5.3%) of the total global e-commerce transaction value by 2025; that's up from 2.9% in 2021.

So what's involved in setting up a buy now, pay later option for your business, and what are the benefits? Let's get into it.

What’s in this article?

• What is buy now, pay later?
  
• What do people purchase with buy now, pay later?
  
• How does buy now, pay later work?
  
• Who is eligible for buy now, pay later?
  
• Benefits of buy now, pay later
  
• How to accept buy now, pay later
  
• Choosing a buy now, pay later provider
  

What is buy now, pay later?

Buy now, pay later allows customers to pay in instalments over time instead of paying the full purchase price upfront.

With buy now, pay later, the full purchase price breaks down into multiple payments, and the first payment is due at the time of purchase. Subsequent payments are due over the following weeks or months. Sometimes interest is added to the payments, but many buy now, pay later providers offer interest-free repayment options.

What do people purchase with buy now, pay later?

Customers can purchase a wide variety of goods and services using buy now, pay later. According to a 2021 Credit Karma survey, here are the top items consumers are purchasing with BNPL:

• Home and furniture goods: 42%
  
• Electronics (headphones, speakers, vacuums): 30%
  
• Clothing (garments, shoes, etc.): 24%
  
• Cars (tyres, repairs, etc.): 21%
  
• Accessories (jewellery, watches, handbags): 14%
  
• Beauty and health (makeup, skincare products, perfume): 12%
  
• Fitness and gear: 12%
  
• Hotels or lodging: 10%
  
• Luxury items: 10%
  
• Travel goods (luggage, camping equipment, backpacks): 8%
  
• Concerts or music festivals: 6%
  
• Airfare: 5%
  

According to the same survey, 44% of US consumers have used buy now, pay later to make a purchase in 2021. And 75% of those who have used BNPL services have used them at least twice, suggesting that they like this payment method. As consumer excitement for this type of financing increases, more businesses are figuring out what kind of BNPL options are the best fit for them.

How does buy now, pay later work?

Customers are presented with BNPL payment options at checkout, alongside other options. If a customer opts to buy now, pay later, the BNPL provider will check their eligibility within a few seconds. Once the customer is approved for a BNPL option, the business is paid upfront and protected against fraud and customer payment risk. For the majority of implementations, the customer submits an initial payment. However, there are options that support paying the full amount later.

The BNPL provider then divides the remaining balance into a set number of future payments due over the following weeks or months. As mentioned, interest can be added to the payments, but many providers offer interest-free repayment options. Future payments can be deducted automatically from the customer's bank account (via cheque or bank transfer) or charged to their credit or debit cards.

Who is eligible for buy now, pay later?

The customer approval criteria varies depending on the BNPL provider and the amount requested for financing. Lower-cost items that will be paid off in just a few payments often carry less strict approval requirements, whereas more expensive items may require customers to have a better credit history.

Benefits of buy now, pay later

BNPL appeals to both consumers and businesses because it's a relatively simple way to make purchases more manageable. Here are a few of the main benefits of buy now, pay later:

• Increases average order value and conversion
  BNPL removes a huge cost barrier for customers by letting them pay in instalments over time. This allows customers the opportunity to purchase higher-value goods, such as furniture or luxury items. BNPL methods also help increase the average cart size by allowing customers to buy more lower-value goods. This results in higher average order values and increased conversion.

• Improves customer experience
  Customers have very different payment preferences. The more payment methods a business accepts, the more likely they are to convert customers and drive sales. With BNPL, businesses aren't just adding one more payment method to their list of available options.They're making higher-ticket purchases accessible to a much larger audience.

• Allows customers to take advantage of sales and promotions
  Buy now, pay later makes it easier for customers to strategically time their purchases around promotions, even if they aren't able to pay for the entire purchase upfront. For approved buyers, buy now, pay later is potentially a great tool for saving money.

• Reduces risk for businesses
  With BNPL, businesses are still paid the full purchase amount upfront (less fees). The BNPL provider handles the tasks of underwriting customers and managing and collecting payments so businesses can focus on their day-to-day. If a customer files a fraud-related dispute, the BNPL provider takes on the risk and any associated costs.

• Removes complexity from payments
  Unlike other types of loans, the structure and terms of buy now, pay later are usually very straightforward and easy to understand.

How to accept buy now, pay later

Stripe makes it easy to accept buy now, pay later with a single integration. Eligible businesses can accept any of these buy now, pay later options with Stripe in minutes, without any additional application, onboarding or underwriting process. Find out which buy now, pay later options you are eligible for by visiting your Dashboard.

Here are a few of the main buy now, pay later providers:

Buy now, pay later providers

Picking the right BNPL provider depends on your particular business needs and customer profiles. For many businesses, working with multiple providers is the best strategy. As you're comparing options, take note of a few key factors that will determine which providers might be the best fit for your business:

• Location
  Not every BNPL provider operates in every market, so make sure you select one that's geographically compatible with your business.

• Terms
  Each BNPL provider has its own framework for setting repayment terms. Look at the types of transactions you process most often and select a buy now, pay later provider that provides the best terms for you. For instance, if you frequently sell items with a higher price tag, choose a BNPL provider that offers repayment terms with more than four payments, which is a common number of instalments for less expensive purchases.

• Credit limit
  Credit limits will vary from customer to customer, but every BNPL provider has a fixed range of credit amounts they're willing to extend. Make sure this fixed range aligns with the purchase values for which your customers are likely to need financing.