The Rise of Buy-Now-Pay-Later Models

A research report by Straits Research states that the global buy now pay later market size was valued at USD 39.65 billion in 2024 and is projected to reach USD 435.20 billion by 2033.

The buy now pay later (BNPL) model is accepted with open arms in E-commerce, and there’s no denying it.

BNPL is a convenient way to divide payments into manageable installments spread across feasible intervals, often without interest. This convenience gives BNPL an upper hand compared to other debt sources.

Unlike traditional credit cards, BNPL has no high fees or complex terms which appeals to younger, debt-conscious shoppers.

In this blog, we’ll delve into the opportunities BNPL presents for businesses and consumers, its risks and challenges, and the trends likely to shape its future.

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Overview of BNPL and its growth in E-commerce

BNPL was traditionally an installment payment, often available for big purchases needing a lump sum amount as payment. They were tagged along with purchases like appliances or furniture and often entailed lengthy credit checks and rigid terms.

Today, the buy now pay later (BNPL) model is a sophisticated payment solution for E-commerce. This option is seamlessly integrated into online shopping platforms and is available as a checkout digital payment solution. Payments made using BNPL are approved in real time and are available at most e-commerce stores.

BNPL has hence transformed into a fully fledged payment solution that has changed how people shop online.

Key drivers of BNPL adoption

Here are the factors that are streamlining the growth and adoption of BNPL:

• Preference for flexible payment options - According to PYMNTS, 43% of consumers choose retailers according to their preferred financing options such as buy now pay later (BNPL) models. Modern customers are tech-savvy, informed, prefer convenience, and above all, are cost-conscious, which is why they prefer BNPL.
• Rise of fintech companies - Fintech innovations have been breaking boundaries and how, by integrating seamless payment solutions like BNPL directly into e-commerce platforms. They offer frictionless experience, real-time approvals, and low/nil interest rates.
• Millennial and Gen Z consumer behavior - Because the younger generation is more informed and thoughtful, they choose short-term and interest-free financing options over traditional credit cards. According to a study by Statista, 60% of BNPL app users are aged between 18 and 34.

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Opportunities for businesses with BNPL

E-commerce business owners skeptical about the adoption of the BNPL model into their ecosystem must check the following BNPL benefits:

1. Attracting New Customers

Today’s shoppers are both budget-conscious and convenience-obsessed. They want economy shopping experiences that offer amazing flexibility. BNPL has a unique blend of qualities that target either or both purchasing behaviors.

By integrating with BNPL models, you can appeal to a wider set of audience and demographics. You also get a competitive edge as early adopters. For example, fashion retailer ASOS reported a significant uptick in first-time customers after integrating Klarna’s BNPL solution.

2. Boosting Average Order Values

A study by Afterpay, a leading buy now, pay later service, revealed that retailers offering such options saw an average increase of 20-30% in conversion rates.

Deferred payment options make it possible for customers to plan their expenses smartly, by spreading them through multiple intervals, and shop more than they can afford. Customers can confidently purchase high-priced items with the availability of the BNPL option.

Industries such as fashion, electronics, and home goods have seen higher order values, with customers feeling more comfortable purchasing premium items.

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Risks associated with BNPL

With opportunities come risks, and as a business owner, you must be aware of them to find ways to tackle them all. Here are some of the risks to be wary of:

1. Overspending by Consumers

It is a fact that BNPL aids great purchasing power but it is also a truth that customers may overspend with this option.

BNPL is built to encourage affordability, but it also is the root cause for impulsive purchases that turn into debt. This accumulation of debt over time, no matter how tiny or big, can lead to financial strains on customers.

For businesses, it means extra friction to receive payments that include tracking customers who miss payment deadlines, levy late fees or penalties, and so on.

Because you have an ethical responsibility towards your customers and society, you must emphasize responsible spending if you are promoting BNPL.

2. Fraud Risks and Bad Debts for Businesses

BNPL does not work like the typical card-based payments. There are additional layers of verifications and approvals, though done on a real-time basis. Fraudsters use these extra steps to find gaps or exploit the verification processes.

Business owners must keep up with BNPL risks for consumers, security measures like real-time credit assessments, and more to be able to detect fraudulent activity or evaluate true creditworthiness.

Lastly, businesses face potential financial losses from uncollected payments or defaults. Some transactions even end up with chargebacks which is a tedious process causing emotional, operational, and financial strain on a business.

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Future trends in BNPL

Now that you are aware of the opportunities and risks, you need to also know about the future trends in BNPL to connect the dots of pay-later adoption in E-commerce:

1. AI-Driven Credit Assessments

Checking the creditworthiness of a customer is a critical element of BNPL. AI in credit assessments can ramp up the process for speed while ensuring accuracy. AI-driven algorithms analyze vast datasets to assess consumer risk profiles in real time.

Merchants can use these valuable insights to craft personalized credit limits and repayment plans, reduce defaults, and improve customer experiences.

Additionally, AI tools are instrumental in detecting fraudulent activities, providing an added layer of security for businesses.

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2. Increased Regulation and Compliance

As BNPL continues to grow, governments worldwide are introducing stricter regulations to protect consumers from over-indebtedness.

For example, the UK’s Financial Conduct Authority (FCA) has announced plans to mandate clearer terms and affordability checks for BNPL providers.

Businesses and BNPL providers must adapt to these compliance requirements, ensuring transparency in repayment terms and caps on late fees. These changes aim to foster sustainable growth while protecting vulnerable consumers.

3. Integration with Omnichannel Retail

BNPL is no longer confined to online shopping; it is rapidly expanding into in-store and mobile channels.

Retailers like Target and Best Buy have implemented BNPL solutions across their omnichannel strategies, allowing consumers to seamlessly utilize deferred payment options wherever they shop.

This integration enhances the customer experience, fostering brand loyalty and repeat purchases.

4. Partnerships with Traditional Financial Institutions

Collaborations between BNPL providers and traditional banks are reshaping the financial landscape. Hybrid BNPL-credit card models are emerging, combining the flexibility of BNPL with the perks of credit cards, such as rewards programs.

These partnerships not only expand BNPL’s reach but also address concerns around creditworthiness and repayment, making the model more robust and inclusive.

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Conclusion

BNPL has played an important part in transforming payments within the E-commerce domain. Customers enjoy the best of convenience and flexibility, while businesses can benefit from the tool that attracts new customers and boosts sales.

However, there are dangers associated with BNPL. Both businesses and customers must be responsible for its adoption. Customers must do their part by avoiding reckless spending and making purchases they cannot afford.

And, businesses must educate their customers and promote responsible use of BNPL. Furthermore, they must embrace AI-driven technologies, prepare for regulatory changes, and integrate BNPL into omnichannel strategies to make the most of this model.

That’s where payment solution providers like Payby can help. It is both important and difficult to keep up with the evolving standards of BNPL models and Payby can handle it for you.

Get started with Payby today.