Sharon Koehler

Stone Industry Consultant

You have probably seen this: You go buy something online and at checkout, a little box pops up and that says: “Pay over time with Affirm. Apply as part of checkout with just a few pieces of info. Learn more.”

Buy Now, Pay Later (BNPL(It doesn’t necessarily have to say Affirm. It could say Afterpay, Zip Pay, Klarna, PayPal Credit or one of the numerous other companies that offer the Buy Now Pay Later convenience to businesses and consumers. Giants like Walmart, Amazon, Macy’s, Pottery Barn, Expedia and Target, to name a few, have partnered with BNPL services. By the end of 2021, 28 percent of small to midsize businesses also offered the service, and that number is expected to grow. 

Buy Now Pay Later (BNPL) has become an exceedingly popular option with businesses lately, and consumers as well, mostly due to the pandemic. Even though BNPL has recently come to the forefront, it has actually been around awhile. Back in 2014, a financial tech company in Australia started Afterpay. As the pandemic gripped the world, people filled their idle hours by shopping. BNPL became increasingly popular and is now widely promoted and accepted by businesses and consumers.

What it all boils down to is that BNPL works along the lines of a personal loan. Consumers want to buy something; they answer a few questions in the app to get approved. Then they can put 25 percent down and make the agreed upon payments spread out over time with usually (but not always) – no interest. 

So, the question is: If the loans are interest free, how do BNPL services make any money? Like credit cards, the businesses that offer a BNPL option pay a transaction fee. It is slightly higher than a credit card fee, usually about 4 percent although depending on the company, and the transaction, it can be up to 8 percent. However, the average BNPL transaction is usually 23 percent higher than a cash or credit card transaction. Some BNPL companies will also add a small transaction fee to payments. Another Express has Pay It Plan It. Chase card holders may have the My Chase Plan offered to them. Citi has Flex Pay. 

Different BNPL service providers have different criteria. Affirm has a maximum purchase limit of $17,500 for qualified customers. Plus, they also offer a virtual card number so consumers can make purchases at non-Affirm retailers. Afterpay offers short term installments, usually four payments. They will also set a credit limit on a consumer’s accounts, so they don’t overextend themselves. Klarna offers a Pay in Four Plan, but they have a pay in 30 days with no interest plan and 6 to 24 months plan, with interest. PayPal Credit actually offers a line of credit on transactions over $99. If paid within six months, there is no interest charge. Sezzle also offers a 4-part payment plan spread out over six weeks, with 25 percent down at purchase, and then three more payments two weeks apart. There are many more BNPL services out there than the ones mentioned above, just be sure to do your research since there are so many different available options. 

 Most of these services, with a few exceptions, only do a soft credit probe, so it doesn’t affect your credit score. However, there is a double standard when it comes to these loans. You can’t build credit with these services as most of them don’t report to the credit bureaus, BUT if you default on your payments or you are late, they can, and some do, report those defaults to the credit bureaus. So, you can’t build credit, but it can hurt your credit if you don’t make your payments as agreed. 

The way these companies make money is late fees. If a consumer is late with a payment, they can be hit with penalties, late payment fees, and sometimes interest as well. Usually, if a payment is late, the consumer is blocked from taking out another loan until everything is current. 

There are two basic types of BNPL loans:

  • No interest loans: The business pays a transaction fee instead of the consumer. 
  • Interest loans: On these transactions, the consumer pays interest on the loan, much like a credit card transaction. 

Credit cards have also jumped on this BNPL bandwagon, but their loans have major differences over the standard BNPL loan. Consumers won’t get the offer before or at checkout. Instead, it will be offered as a choice on the consumer’s statement. American 

In 2020 the number of US consumers that used BNPL services was over 24 million. This year (2022) that number is expected to grow to over 59 million, and by the end of 2024 the number of US consumers using BNPL is expected to be over 76 million. If you think BNPL is right for you and/or your business, just remember to do the research and pick the service that is right for the circumstances you are in. They all are a little bit different. Even if you don’t like the idea of offering this as an option to your customers, 59 million consumers in the US can’t all be wrong.

Please send your thoughts on this article to Sharon Koehler at