Consumers Are Loving BNPL, But Is It Right for Your Small Business?

January 19, 2022

Instant gratification. That’s part of the joy of shopping. The rise of Buy Now, Pay Later (BNPL) options has made this even easier to obtain. But do these features represent a good fit for your small business?

More and more consumers are making purchases through Buy Now, Pay Later services. This financial arrangement gives shoppers increased flexibility and another option for controlling their personal cash flows.

That’s the benefit BNPL offers to your customers. But do you get a boost as well? In this article, we'll give you the basics on this emerging industry and let you know how to select the best situation for your startup.

What is BNPL and how does it work?

Buy Now, Pay Later is a relatively straightforward concept. In fact, the name sums up the idea perfectly. A customer buys a product or service now, but has the option to pay for it over time. This is done through installments.

In most cases, the service comes with financing charges. The amount will differ based on circumstances, but the rate often reaches credit card-like APR figures in the 20% range.

Let’s look at an example to illustrate how BNPL works. Say a customer wants to purchase a product that costs $100. They opt for a BNPL plan with four installments. Now, instead of giving the full $100 immediately, the buyer will pay $30 each month for the next four months.

Why are BNPL services so popular with consumers?

The popularity of BNPL programs have skyrocketed in recent years. Data reported by Motley Fool showed that between mid-2020 and March 2021, the use of these options rose almost 50%.

The popularity of BNPL programs have skyrocketed in recent years. Data reported by Motley Fool showed that between mid-2020 and March 2021, the use of these options rose almost 50%.

A majority of consumers have now used these programs (55.8% as of the Motley Fool survey). Meanwhile, BNPL has proven most popular among young consumers and older consumers (with usage nearly doubling among shoppers above 55 years old).

Largely, this growth comes down to two main factors:

  • BNPL offers a convenient choice for most consumers. The process is usually integrated at the point-of-purchase and allows the buyer to afford items that might otherwise be too expensive.
  • Improvement over other short-term financing options, like credit cards. BNPL programs typically carry a high interest rate, but they don't include mounting interest or late fees, meaning they offer a better fit for many consumers.

What are the pros and cons of BNPL for small businesses?

Now you have the basics of BNPL and understand what it offers your customers. But what does it provide for you?

That's the key question for deciding whether to add these services to your toolkit. To judge BNPL, you need to understand the possible upsides along with the potential sticking points.

With that in mind, here are some pros and cons for small businesses implementing BNPL:


  • Improve conversion rates: A BNPL option makes it easier for your customers to click "Buy." Your offerings suddenly become more affordable because shoppers have the additional financing option.
  • Higher average purchase amount: BNPL effectively makes your higher-priced offerings more affordable. As a result, customers feel comfortable making bigger-ticket purchases.
  • Ease of use: Once integrated into your e-commerce system, the BNPL process essentially becomes automatic for you.
  • More customer options: Along with credit cards, gift cards and whatever other options you provide, BNPL lets shoppers pick the financing that suits them best. This flexibility adds to your perceived value and will expand your customer base.
  • Keep up with the competition: The growing popularity of BNPL means that you might need to add it just to prevent your e-commerce engine from falling behind the competition. Could you imagine not allowing credit card purchases? BNPL might be at the same level within a few years.


  • Merchant fees: BNPL providers will want their cut. That means that you might not earn as much on these purchases as you would if people simply bought the item the old-fashioned way. Hopefully, you make up for the cost with the other benefits. But you should keep merchant fees in mind.
  • Tech upgrade required: You'll need to integrate the BNPL option into your website. If you're using a third-party provider (more on that later), they will do the heavy lifting for you. Still, integration hiccups are not unknown.

How do I offer BNPL?

Theoretically, you could offer a BNPL option yourself. Fundamentally, you would take on the risk of nonpayment and offer an installment plan for your products.

This process would let you skip merchant fees. You'd pocket any cash earned for yourself. At the same time, you'd keep control of the terms and other aspects of the service.

However, this self-directed option has significant drawbacks.

First, you're taking on a financial risk. What if your customer doesn't pay? Do you have the financial resources or knowhow to properly operate a BNPL option?

Second, setting up the program requires a sizable technological investment. You'd have to implement all the necessary tools on your website by yourself.

Given these hurdles, almost every small business would be better off choosing from among the established BNPL players. Each one of these providers has its own points of differentiation. You'll need to conduct the research and choose the one that works best for you.

Here are some of the biggest players in the industry:

  • Affirm
  • Afterpay (being acquired by Square)
  • Klarna

However, these names just represent the tip of the iceberg. Like any emerging business, you'll find dozens of startups and smaller competitors to choose from.

Using BNPL to boost your small business

BNPL is more than a fad. As a small business owner, it can become a critical addition to your e-commerce platform. It can help grow your customer base, increase average purchase amount and improve conversion rate.

[BNPL] can help grow your customer base, increase average purchase amount and improve conversion rate.

However, these services also come with added costs and challenges. Be selective about your partners and strategic about implementation. The information here will get you started on the path to deciding if adding this payment option is right for your small business.