As a small business owner, you’ve probably noticed more customers asking about payment plans or walking away from purchases they can’t afford upfront. Buy Now, Pay Later (BNPL) services might be the solution you need to capture those lost sales and grow your revenue.
BNPL lets customers split their purchases into smaller, interest-free installments while you receive the full payment immediately. But before jumping in, you need to understand both the opportunities and challenges this payment option presents for your business.
BNPL can boost your sales by 20-30% and increase average order values by up to 87%, but comes with higher transaction fees (2-8%) and operational complexity. It’s particularly valuable for businesses selling $50-$500 items to younger customers.
What Exactly Is Buy Now, Pay Later?
BNPL is a short-term financing option that splits customer purchases into manageable payments, typically over 6-8 weeks. Popular providers like Klarna, Afterpay, and Affirm handle the credit approval, payment collection, and default risk while you receive the full purchase amount minus processing fees.
The process is straightforward: customers select BNPL at checkout, get instant approval, make their first payment, and you get paid immediately. The BNPL provider then collects the remaining payments directly from your customer.
The Growth Numbers Tell a Compelling Story
The BNPL market is exploding, and your customers are already using these services. 15% percent of Americans used BNPL in 2024, up from 14% in 2023 and 12% in 2022, according to the Federal Reserve. Even more telling, an estimated 86.5 million people in the U.S. used BNPL in 2024, up 6.92% year-over-year.
The transaction volumes are staggering. The transaction volume of Buy Now Pay Later was $309.2 billion in 2023 and is predicted to reach $386 billion in 2024. For context, BNPL accounted for $18.2 billion worth of holiday shopping in 2024.
(Source: Adobe Digital Insights)
Why Your Business Should Consider BNPL
Dramatic Sales and Conversion Increases
The impact on your bottom line can be significant. Data from Stripe show that businesses that accept BNPL services experienced a 27% incremental uplift in sales volume. Even more impressive, retailers using their BNPL services reported an average increase of 20% in conversions and 87% in Average Order Value (AOV).
These aren’t outlier results. RBC Capital Markets estimates these point-of-sale loans increase retail conversion rates 20% to 30%, and lift the average ticket size between 30% and 50%.
Reduced Cart Abandonment
Cart abandonment kills sales, especially for higher-priced items. Klarna claims a 30% improvement in checkout conversion when BNPL is available. When customers can break down a $200 purchase into four $50 payments, that psychological barrier disappears.
Access to Younger Customer Demographics
Stripe’s data show that more than 26% of millennials and nearly 11% of Generation Z shoppers have used BNPL to pay for a recent online purchase. These customers often don’t have credit cards or prefer alternatives to traditional credit. BNPL gives you access to this growing market segment.
Immediate Cash Flow Benefits
Unlike traditional layaway, you receive full payment immediately while your customer pays over time. This improves your cash flow and eliminates the risk of chasing down payments.
The Real Costs and Challenges
Higher Transaction Fees
Buy now, pay later transactions cost merchants anywhere from 1.5% to 7% of a customer’s total purchase amount, compared to 1% to 3% for most debit and credit cards. For low-margin businesses, these fees can quickly eat into profits.
Increased Customer Service Complexity
If the customer has a payment question, needs to process a return, or can no longer make payments, they’re likely to go straight to the merchant to get assistance. You’ll need to train your team to handle BNPL-related inquiries even though the payment processing happens through a third party.
Higher Return Rates
BNPL encourages impulse purchases, which may result in higher returns or exchanges. Returns are expensive: It costs a company 66% of the price of a product to process a return. The easier purchasing process can lead to less thoughtful buying decisions.
Customer Satisfaction Risks
You also should prepare for the fact that a customer who has a poor experience with the BNPL provider might inadvertently blame your business. Problems with the BNPL service can damage your reputation even when they’re outside your control.
Is BNPL Right for Your Business?
BNPL works best for certain business types and situations:
Ideal Candidates:
- Average order values between $50-$500
- Customers aged 18-45
- Seasonal or discretionary purchases
- Fashion, electronics, furniture, or lifestyle products
- Businesses struggling with cart abandonment
Proceed with Caution If:
- You operate on very thin margins
- Your average order value is under $50
- You primarily serve older demographics
- You can’t absorb higher processing fees
Getting Started: Practical Steps
- Calculate the Math: Determine if the increased sales volume will offset higher processing fees. If BNPL increases your conversions by 25% but costs 3% more in fees, you’ll likely come out ahead.
- Choose Your Provider: Research providers that integrate with your existing payment system. Consider factors like approval rates, customer demographics, and fee structures.
- Train Your Team: Prepare staff to handle BNPL-related customer questions and return processes.
- Monitor Performance: Track metrics like conversion rates, average order values, return rates, and customer satisfaction to measure success.
- Start Small: Consider testing BNPL with specific product categories or during promotional periods before rolling it out broadly.
The Regulatory Landscape
In May 2024, the CFPB classified BNPL lenders as credit card providers under the Truth in Lending Act and Regulation Z. This means increased consumer protections and potentially more regulation ahead. Stay informed about compliance requirements as the regulatory environment evolves.
Making the Decision
38% of merchants have experienced a rise in customer satisfaction since first offering BNPL as a checkout option. However, success depends on your specific business model, customer base, and ability to manage the additional complexity.
Consider BNPL if you’re losing sales to price sensitivity and can absorb the higher transaction costs. The 20-30% boost in conversions often justifies the additional fees, especially for businesses with healthy margins.
Remember, offering BNPL isn’t just about the immediate sales boost—it’s about meeting customer expectations in an increasingly competitive marketplace. Your competitors may already be offering these options, and customers might choose them simply for payment flexibility.
The decision ultimately comes down to whether the increased sales and customer satisfaction outweigh the costs and complexity. For many small businesses, especially those targeting younger demographics or selling discretionary items, BNPL represents a powerful tool for growth in today’s economy.
