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Buy now pay later – What markets this strategy stands for?

Buy now pay later (BNPL) – sometimes I will refer to it in this way, is a new paying method that can revolutionize the whole market.  

In this article, I will introduce you to its working mechanism, history, what cases can be beneficial for you, and what markets this strategy stands for.

Table of contents:

  1. Working mechanism
  2. History
  3. The markets where it is great to use
  4. Benefits of using this payment method
  5. Conclusion
  6. Working mechanism

The whole idea of creating BNPL was the decreased paychecks the human workforce got in the middle of the COVID-19 epidemic. The less money the people have, the less money in circulation. And one step in bringing the economy back on track is without a doubt stimulating people to purchase more. 

Even though the e-commerce market was booming between 2020 and 2022 and customers spent more percentage of their money online than in the previous years, the overall spent money was way less than the previous years. 

Those days, a huge number of economic experts tried to figure out a way where people can spend more online, especially for bargain goods, without paying the price in time. 

In the BNPL strategy, there are three different roles. There is a customer who wants something but doesn’t have enough money to buy it right now. There is a seller, who sells their products and tries to maximize its profit. 

And there is a BNPL service provider that matches these two sides into a pair.  

The actual system works through a very easy-to-understand mechanism: The customer buys something without paying the price of the actual product through a BNPL service provider. Then, the provider pays the chosen product’s price to the seller from its own resources. 

Meanwhile, the customer accepts the terms and conditions of the installment payment. The customer agrees about the number of periods of the payment, the starting date, the possible interest rate (usually it doesn’t exist), and the possible payment surplus if, for example, the customer got late paying the fee of the installment. 

Most of the time the actual fee is divided into four equal pieces, and there are six weeks to pay back the whole price. 

If the customer runs out of time, the provider has the right to charge interest rates, and from that time, the customer has to pay back the increased price.

How does it appear to be good for each of the featured roles? Let’s see!


  • has the ability to buy more than he can, without getting into a loan depth. 

BNPL provider:

  • get a few percentages from the price and get interest rates from the clients who are late.


  1. History

Unexpectedly the first BNPL services didn’t appear after the Coronavirus crisis, instead the financial crisis of 2009. 

The first few players in the market were Affirm, Afterpay, and Klarna. Affirm was founded in 2012. 

The service attracted a huge number of buyers for a very short period since human beings tend to spend more than the actual money they have.

However, the increased tendency of usage that experts had projected for this option hasn’t been particularly right. 

Some people used it, but many didn’t actually know that this possibility even existed. 

After the pandemic started in 2020 and people had to work from home, the number of online transactions started to increase. That year, people still had some money to buy goods and pay on time.

But the pandemic situation remained the same, and as many companies started to collapse and people lost their jobs in a matter of a minute, an average family had less and less money to work with.  

They still wanted to buy the goods they got used to, but financially they couldn’t afford them. This was the moment when BNPL, a short-term cheaper option, had conquered the market. BNPL spending in the US is up 230% since 2020, but an increased tendency can be seen in most of the European countries also. 

Nowadays, this form of payment appears to be seen in almost all of the big retailers, as they trust the increased willingness of the customers to buy something from them.

  1. The markets where it is great to use

Mostly this strategy stands for middle-range priced products. It’s because low-cost products can be paid for by everyone, and those don’t require dividing the price by four equal parts. 

High-cost, premium products rather require loans. Also, those schemes would not be worth for the BNPL provider to participate in those transactions for many reasons. 

The first few businesses that started to use BNPL actually came from the market of E-commerce. In that market, the most important thing is to convince the customers to buy more and more products, even if they don’t have money right now. 

Many research studies have shown that after BNPL payment was introduced in this market, the average order value of the sold products started to rise. It means that since the introduction, customers can afford more expensive products, however, this is not always the case. 

You as a seller rarely have any issues with this system, since you got your money from the BNPL service provider. 

But most of the time customers have. According to research studies, more than 40% percent of all people who use this system can’t pay it back at the right time, and get into debt. 

These numbers are shocking, so be aware not to promote this payment method too frequently. It is a great option from time to time, but definitely not always.  

The travel and hospitality sectors are also a fan of this technique. It is not a coincidence. Spending money for our entertainment and relaxation is not the first of many. And if the economy is not in its best form we may not travel anywhere. 

However, if we can pay for our holiday in a way where we can split the total price into 4 equal small amounts, we can yet think of a possible vacation.

  1. Benefits of using this payment method

One of the first things that comes to people’s minds is convenience. There is a group that has the money to buy their chosen products, but this category feels that it is much simpler to just split it into 4 different pieces than paying the whole price at once. This is the first category. 

Since there are no interest rates most of the time, and we are calculating the decreasing price of the future value of money, situations may occur when the customer pays less here than in a one-time payment.  

Also, sometimes this may be their only option to make a purchase. It can be the case when a crucial electrical product has a malfunction, and they need another one as soon as possible. This is the second category. 

In these situations, people most likely don’t care about how they just want to buy the product to avoid bigger catastrophes. This category is more dangerous than the previous, as here the customer is not sure that he will have enough money to repay the deferred payment. 

In terms of an online shop, introducing this payment possibility can lead to many positive impacts: 

  1. Customers will buy more products – As the customer feels that he can afford more products

  2. Larger Average Order Value – They don’t only buy new products but rather choose a more expensive option

  3. Increased conversion rates – A decreased chance that a customer cancels his buying path

  4. Attraction of new customers – The more payment options you have, the more people will shop on your site

  5. Lower risk of fraud – Implementing these systems goes with obeying many protocols, so your site seems more trustful 

  1. Handicaps of using this payment method

Of course, you can increase the number of purchases on your site. But at what cost? If your clients go into debt, in the long term, this option won’t satisfy your needs. 

You have to somehow draw attention and show your customers how to use this technique in the right manner, without going into a greater and greater depth. 

This option is not for everyday purchases! Don’t make a fool of them and let them buy everything, as sealing a sale is not everything you can achieve. 

You have to take care of the user experience that can easily be damaged by a bad BNPL strategy. Since a bad user experience can create low conversion rates, you have to avoid this scenario. 

  1. Conclusion

As you may have already figured out, the buy now pay later paying method has many benefits which can lead to increased conversion rates and healthier conversion funnels. 

But be aware not to promote it as a miracle, that can help the customer in any case. Of course, it is useful, but in only limited cases. 

You should introduce it, if you sell mid-range products, whether those are electrical, household appliances, or clothes. If you provide a service, it can also be beneficial for you. For example, if you run a travel agency company.

From my perspective, while BNPL has many positive impacts, it won’t revolutionize the market due to its limitations.  

If you are one of the contenders in the following sectors that I mentioned above I think you should give this method a try, because its accessibility is very simple. 

But in any other case, I don’t think you would win a lot. 

Read More here at TECH NEW UK



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