Buy Now Pay Later:
Juggling Consumer Popularity and Changing Market Demands

February 08, 2023 | Expertise

What is BNPL?

Buy Now, Pay Later (BNPL) schemes are a form of short-term financing that allows customers to purchase products at the point-of-sale. A consumer will typically pay an amount upfront and the remaining balance is paid off in predetermined installments. Most BNPL schemes are interest free as long as the consumer keeps up with the payment plan. They offer a flexible and cheap way of spreading out the cost of a purchase, with consumers avoiding the high interest rates of credit cards. However, some new BNPL players, such as Oney and Tabby, offer installment payments using only credit/debit cards. They also allow consumers to purchase items that may have otherwise been outside their financial reach.

For a while, BNPL companies were the darlings of the market, and included some of the most lucrative companies operating in the fintech space. This resulted in many smaller services being acquired or merging, such as Square acquiring Australia-based Afterpay for USD 29 bn in August 2021. According to Precedence Research, the BNPL market was expected to reach USD 3268.26 bn by 2030, a compound annual growth rate (CAGR) of 43.8% from 2022 to 2030. However cracks are now beginning to appear. Klarna, once the most valuable private fintech company, laid off 10 percent of its workforce in May 2022, and a further 500 layoffs were announced in September. Its valuation has plummeted by around 85%, from nearly $46 bn in 2021 to under $7 bn. This raises questions about the profitability of the BNPL model going forwards, although demand for these services is undoubtedly present.

What drove BNPL’s initial popularity?

The concept of buy now, pay later has been around for a long time and predates online shopping. It is attractive to consumers, as they get the gratification of a purchase without a large and immediate financial blow. Customers like it as they offer the following:

  • Ability to pay in installments
  • The ability to afford larger purchases that would not be possible in a single payment
  • An alternative to credit for those without access
  • Ease of use (payment details are often saved with the BNPL provider)

Who uses BNPL?

At the moment, BNPL schemes are hugely popular in Europe, North America and Australia. According to research in the USA conducted by C+R Research, 60% of respondents had used BNPL services. However, forecasters predict that the Chinese and Indian markets will grow and have the largest transaction rate by volume by 2025. BNPL is also a POS alternative, with in store growth increasing annually.

A survey by AfterPay found that 42% of Gen Z and 69% of millennial shoppers are more likely to purchase items if a BNPL service is offered. Other surveys have shown that customers who use BNPL tend to spend more. However there is no data on how many of these purchases or partial purchases were returned and refunded. The buy now, pay later model encourages consumers to purchase more items in the knowledge that they do not have to pay for them if they do not keep the items. This leads to some consumers buying multiple items of clothing to see which one fits best, creating their own in-store experience at home.

Some fintechs are looking to expand the BNPL model into other sectors, such as healthcare, which is of particular interest in countries without universal health care. This would open new doors to users and create financial products that are tailored to meet individual consumer needs and provide a convenient, seamless, and streamlined experience for essential expenses. This is an evolution of the catch-all BNPL schemes we are seeing at the moment.

Are BNPL schemes a risk to merchants?

The idea of letting your customers pay you once they have received a purchase seems risky for merchants, but this is a common misconception. The BNPL schemes themselves front the money, giving merchants immediate access to the funds while securing repayments from the customer. Merchants are also not liable for fraud associated with BNPL payments. Liability for fraud, chargebacks or default payments resides directly with the BNPL provider.

On a practical level, merchants are more likely to receive returned goods. How this affects their bottom line is determined by their business model. Companies such as Shein and other fast fashion retailers (where BNPL is an extremely popular payment method), will just throw away returns as it is cheaper to do so than put them back into circulation. This naturally raises questions about the impact of a throwaway culture and the costs to the environment.

Are BNPL schemes a risk to consumers?

This is a contentious subject. Many view BNPL as access to easy credit and a means of allowing those on low incomes to afford essential expenditure they could not otherwise afford in a single payment. Others argue that it allows users to unwittingly fall into debt, an issue that has been the subject of government review in several countries. As awareness of these issues has grown, various BNPL providers have taken steps to avoid these pitfalls. For example, Tabby sets individual spending limits to ensure that consumer spending is responsible. LayBuy has hardship programs in place for customers unable to meet their obligations due to changes in circumstances, such as unemployment, long-term sickness etc.

For consumers who miss a payment or have insufficient funds, they can (depending on the BNPL provider used) trigger penalties causing customers to pay interest for the rest of the payment period. Some providers charge consumers up to 25% of their purchases for late payments. This can have a crippling impact on a person’s credit score and budget. Payments are not typically reported to credit bureaus, but missed payments and defaults are  - something that consumers may not be aware of when choosing this method at checkout.

Is BNPL right for your business?

As a payment orchestration platform, we know the importance of offering customers their preferred payment methods. More and more users are making use of BNPL and this trend is set to continue. There is talk of more regulation, but as of yet there is no set date or clear vision of what form regulation will take. Depending on what products or services your business sells, BNPL could allow you to engage with more consumers and increase your turnover.

IXOPAY is a provider agnostic platform that sits between the merchant and the payment service provider. Merchants can choose which providers they want to use to process their payments, giving them complete control of their payment stack. IXOPAY is connected to Buy Now, Pay later payment providers across the globe, allowing merchants to easily integrate them into their payment setup. You can find further details on our partners in our full list of available providers.

For more information on BNPL and other payment methods, contact our sales team. They will be happy to provide you with a platform demo and help create a payment stack that caters to your payment goals.


IXOPAY is a payments orchestration platform enabling independent, flexible and global payment processing. As a highly scalable and PCI-DSS certified “fintech enabler”, IXOPAY fulfills the needs of large merchants as well as those of “white label” clients: payment service providers (PSPs), acquirers and independent sales organizations (ISOs). The modern, easily extendable architecture offers smart transaction routing and cascading, state-of-the-art risk and fraud management, fully automated reconciliation and settlements processing, comprehensive reporting as well as plugin-based integration of acquirers, payment service providers and alternative payment methods (APMs).

IXOPAY is part of the IXOLIT Group, founded in Vienna, Austria in 2001. With local entities in Austria and the USA, IXOLIT supports national and international customers across various industry verticals. The owner-led and -financed company has grown from 2 to more than 80 employees and is focused on building innovative solutions for eCommerce.

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