What is BNPL? Buy Now Pay Later Guide


Buy Now, Pay Later (BNPL) solutions, also known as installment payment services, enable customers to split purchase totals into smaller interest-free (or low-interest) payments spread out over a few months. They’re an effective offer for customers that lower barriers to purchase, increase brand loyalty, and assume almost no risk at all in implementation. When choosing a BNPL service, customer experience should be top of mind.

When you come to our site, read our content, or follow us in basically any way, you can clearly see that we are slightly obsessed with helping online retailers create as many frictionless customer experiences as possible—including how people pay for their purchases.

Sure, ecommerce has made huge strides in recent years, but we want to crack the code to permanently shift buying behaviors from in-person to online. Giving consumers options and creating a shopping experience that is easier and more intuitive than in-person shopping is a good place to start.

In the ongoing quest to break down as many barriers to buying and ensure a frictionless customer experience for online shoppers, a variety of tools and services can (and should) be employed. Slick ecommerce platforms like Shopify and WooCommerce make building and optimizing your shop simple. Route ensures customers’ packages are accurately tracked and delivered without issues. So it’s imperative to not let the customer experience fall short when it comes to the step between shopping and tracking: the checkout.

Buy Now, Pay Later (BNPL) or installment loans help ease sticker shock by splitting up the payment over several months. Best of all, Buy Now, Pay Later services can be offered without ecommerce retailers assuming the risk of payment.

Let’s get to it.

What Is Buy Now, Pay Later (BNPL)?

BNPL is an acronym for Buy Now Pay Later and is a payment financing option that gives  shoppers the ability  to make a purchase without cash on hand. When choosing BNPL, a customer can pay off the purchase total in installments without having to dip into credit cards and accrue massive interest.

Did you know that 63% of millennials don’t even own a single credit card? To refresh your memory, millennials today are between 26 and 40 years old and have more than $200B in spending power. With no card required and no threat of stockpiling endless interest, BNPL services are a tasty solution for this group of consumers.

These services enable people to buy big-ticket items (or many small-ticket items) without having to stress about having the money upfront. You do it with your credit card, you do it with your house, you do it with your car, so why not do it with your online shopping cart?

Offering more flexible payment options across your ecommerce store attracts more customers who might not have been able to make a huge purchase previously. By splitting up purchase totals over 4, 6, or even 8 months, expensive purchases are more palatable and in reach by your typical consumer.

Of course, what’s to stop someone from getting the product and never paying? Doesn’t that just mean you are operating on a loss? If you’re a loan shark, the answer might be blackmail or a threat of violence.

In the world of ecommerce: enter installment payment services.

The great thing about installment payment services, or BNPL payments, is that you, the retailer, generally assume no risk when offering it as an option. With modern installment payment services, when someone buys a product and accepts a financing plan, the installment payment service pays you immediately in full for the product and then assumes the debt. You get happy customers who feel empowered to spend.

BNPL is not for every online merchant. Most services do not allow financing plans for purchases under $50, so if your average order value is around $20, this might not be the service for your store. BNPL also adds to your (the retailer) cost, with most services charging a percentage fee of the transaction. So, if you operate a store with slim margins, it is probably going to be difficult to justify and swallow another line on your cost of goods sold.

How Buy Now, Pay Later Can Help Your Ecommerce Store

Short answer: The service is going to help you make a whole lot more money. 🤑

Like we mentioned above, we are all about creating frictionless buying experiences, and you won’t see us holding our noses up to any tool or service that bolsters your merchant’s arsenals of experience tactics.

For any online retailer, abandoned carts are the enemy. Adding an item to the cart is easy, but once a customer checks on their cart and sees the final price tag, many leave the site without purchasing anything. According to PYMNTS, mobile ecommerce shopping cart abandonment is 86%. According to Swedish-based BNPL firm Klarna, their service helped drop cart abandonment by 30%, which could effectively double some retailers’ profits.

By breaking through that mental wall that sticker shock brings, customers are more likely to purchase even more. Klarna and Affirm report a 58% average order value increase.

Finally, using BNPL solutions usually results in more satisfied customers who return to shop again. Klarna and Affirm both report 20% increase in return shoppers while Zip reports 80% increase in repurchase rate.

It should also be mentioned that many modern retailers including DSW, Sephora, and American Eagle all offer installment payment services in-store as well. This means that if you also operate a brick-and-mortar storefront, adding BNPL to your store could help increase in-person sales, too.

So, more people buying your products, more products in each order, and more return shoppers. AKA, you’re making a whole lot more money. 🤑

6 Best BNPL Brands of 2022

There are a ton of players in the BNPL space with more companies debuting their solutions by the day. Here are some of the major players:

1. Affirm

The deets: Affirm is a BNPL service used in major retailers like Walmart.com, Adidas, and Peloton. Affirm customers can select payment plans ranging from 3 to 36 months. Interest rates range from 10%-30%. Affirm charges a 2%-3% transaction fee to the merchant. Each Affirm customer’s credit score is checked and the debt can affect their credit.

What we like: It’s easy for sellers to add Affirm to the checkout process without detracting from or slowing down the customer flow. Plus, shoppers don’t need a minimum credit score in order to use Affirm for their purchases and get immediate funding, which means you open up purchase opportunities for loads of people who might’ve been fighting price barriers.

What we like less: Affirm does run a soft credit check before approval, and if someone’s credit isn’t great, they could be staring down a steep 30% interest rate. A high interest rate could be what drives them away at the last minute.

2. Afterpay

The deets: Afterpay is an Australia-based BNPL service that offers four-installment payment plans and doesn’t charge interest to the customer. Afterpay charges $.30 per transaction plus 2%-3% commission to the merchant. Afterpay does not run a credit check and charges $8 late fees for missed payments.

What we like: Unlike Affirm, Afterpay splits checkout totals into four equal installments. Each installment is due every 2 weeks, and if a customer doesn’t pay an installment, they’re charged $8 (and can’t use the service again until they’re all caught up!). This is all to say that we really like how predictable Afterpay is. This lends some peace of mind to customers looking to break up big costs.

What we like less: Not every purchase will be approved. For example, if a shopper missed a payment in the past and has a generally rocky history using Afterpay, they might be cut off from this option. If they were counting on splitting a big purchase into four payments, this surprise could send them to Cart Abandonville.

3. Klarna

The deets: Klarna is a Swedish BNPL firm designed to create the most flexible payment process possible for your customers. Klarna users who pay in four payments, in-app, or within 30 days may have a soft credit check performed, which will not show up on a credit report.

Monthly payment plans will result in a hard credit check and the debt can affect a customer’s credit score. Klarna charges $.30 plus a 3.29% or 5.99% variable transaction fee to merchants. Klarna is the only BNPL solution to offer a loyalty program with Klarna points that can be redeemed for gift cards or exclusive shopping perks.

What we like: As you can see in the deets above, Klarna enables online stores to provide customers with a wider variety of payment options. Instead of just installment plans or small loans (at a max annual interest rate of 19.99%), why not offer shoppers both? Plus, you can also choose to offer Klarna’s “Pay Later in 30 Days,” which is basically a 30-day trial of your goods.

An impressive roster of payment options, a reasonable maximum interest rate, and a 30-day trial give more shoppers a shot to buy from you as well as build trust and loyalty.

What we like less: Klarna loans have a relatively small max—$300. If you sell more expensive goods on your site that average over 300 bucks, Klarna might not be the best fit for your store.

4. Quadpay

The deets: QuadPay is partnered with Stripe to help offer customers four-part payment plans over 6 weeks with no interest. They do not run a credit check on users, and fees for late payments are a low, low $7.

What we like: If you have a brick-and-mortar store in conjunction with your ecommerce presence, you can set up QuadPay there, too. This gives every customer, online or in-person, the option to pay less up front. Even though QuadPay isn’t the only BNPL provider to bridge online and in-store, they do seem to provide the most support to retailers looking to implement in-store services.

What we like less: QuadPay gives customers one repayment option—four installments, with the first 25% of the purchase due at checkout—and only accepts payments via Visa or Mastercard. Will your customers think this is too few options, or will they think it’s just right?

5. Shopify

The deets: What do we know about this service? Not much right now. Shop Pay Installments is Shopify’s recently announced proprietary installment payment solution offering users four-part interest-free payment plans that’s set to roll out in 2020.

There are no details on merchant fees, interest fees, in-store options, or really anything else at this time. Why did we even include it? If you’re running on Shopify right now and are exploring your BNPL options, you should definitely know this option is waiting in the wings.

What we like: Shopify is a hugely popular ecommerce platform with 20% of the market share (as of 2019). Shopify Pay Installments will be a seamless addition to your checkout process and will offer customers more flexibility with their payments. And between you and us, we suspect Shopify’s share to grow as more customers flock to hassle-free payment methods offered by Shopify merchants.

What we like less: If your store isn’t using Shopify Payments or you’re operating outside the U.S., this isn’t an option for you. Will Shopify expand this service beyond the U.S.? We have no idea! But we did sign up for the waitlist and hope to find out. Some day. Maybe.

6. ZipPay

The deets: ZipPay offers interest-free installment plans. All purchases made using Zip are added to a user account where payment options can be chosen for each purchase. Customers are charged a monthly $6 account fee if their account is active and merchants are charged $.15 plus 2%-3% transaction fee.

What we like: Customers can make purchases up to $1,000, pay no interest, and take as much time as they need to repay their purchase loan as long as each payment is the minimum $40. This means online stores offering big-ticket items can reach a broader audience of shoppers.

What we like less: Zip is an awesome option—if you’re running an Australian store. That’s right. In order to add Zip to your store, you need to have a registered Australian Business Number (ABN) and apply through Zip.co. So while this option might be nice for some shoppers, it has pretty niche qualifications for sellers.

Which BNPL should you pick? Put your customers first

At the end of the day, we believe in the importance of superior customer experience at Route. That’s why we work to create the most seamless and beautiful package tracking system available. Just like BNPL, giving customers the option to protect and track their packages in the most pleasant way possible is a foolproof way for retailers to round out their customer experiences, rally up more repeat customers, and build coveted long-term loyalty.

See how Route creates a loyalty-boosting customer experience

See how Route works

TL;DID read: We like Klarna the best

The company we believe most aligns with our vision of a truly frictionless and inspiring online customer experience is Klarna. 

Klarna’s mobile app and marketplace are beautiful, and the seamlessness of using the service and making payments is superior to other options. Klarna integrates with all major ecommerce sites and is consistently committed to improving the customer experience as evidenced by their loyalty program.

Klarna may not be the cheapest option available for retailers, but the freedom for the customer to choose the best payment plan for them will hopefully far outweigh any other costs of the service.

With this said, you should always choose the installment payment solution that best fits your brand, makes economic sense, and will result in the happiest customers. Happy customers means return customers, and isn’t that what ecommerce dreams are made of?

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