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What Is Buy Now, Pay Later?

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Buy Now Pay Later Buy Now Pay Later Placehoder
4 min read


What is buy now, pay later?

Have you been wrestling with the decision on whether or not to buy that new Endy mattress or 4K Ultra High Def TV? Well, you may be happy to hear there is a new feature that allows you to purchase items in a similar manner to a layaway plan.

Wait, so you don’t have to empty your pockets for that new pricey purchase?

That’s right - there is a new payment option in town, called buy now, pay later. Just as the name suggests, this option allows consumers to pay in installments, rather than everything up-front.

This isn’t your average layaway plan - consumers get the item right away rather than waiting weeks (or months) for the pay-off. The consumers will receive their item as soon as they have made their first payment and then will pay a certain amount each pay period going forward.

However, like anything in the financial world, there’s some fine print. The consumer may be subject to interest rates and late fees, which vary depending on the buy now, pay later solution provider.

It’s not just online consumers that are beaming at this option. Stores have reported up to a 30% increase in customer conversions after providing these installment plans while taking away the typical buyer’s remorse that can come with big purchases. Given this trend’s appeal to price-savvy consumers and shopaholics alike, it is expected to continue its successful growth.

What are the benefits of offering an installment plan?

Besides offering up a trending new feature, there are numerous perks when giving consumers the option to buy now and pay later. Shoppers can make purchases without having to shell out big bucks immediately. In turn, businesses get their payment in full, covered by the installment provider they are using.

Most providers cover their costs through their processing fees, so they don’t charge directly for covering upfront costs. Many providers also absorb any credit and fraud risk, which is a big plus for businesses that are on-the-fence around this payment model.

But wait, there’s more! Since there is less shock to a consumer’s bank account when payments are spread out, consumers are likely to spend more than they would be using a standard checkout method. Financing options like this can be desirable to younger generations. Over 50% of Millennials and Gen Z-ers are more likely to purchase with buy now, pay later when given the option of installment plans. Plus, when businesses offer this model, they can increase brand loyalty as consumers gravitate to more affordable payment options to make a purchase.

Another perk for businesses that hop on this trend is how providers, like Afterpay, promote your business in their online marketplace. Consumers can search directly on these marketplaces for stores that offer their buy now, pay later services. Some installment providers have their own apps where consumers can have shopping experiences without visiting the store website, with the ability to track rewards and save their favourite stores. Free promotion + higher sales = win-win.

What’s the catch?

Businesses may be thinking this is too good to be true. Well, yes - there is no such thing as a free lunch. To receive all the benefits that buy now, pay later can bring, installment plan providers charge a higher processing fee than credit cards. These fees can range from 3.75% - 6%, which may also include a per-transaction fee. That being said, for businesses that have the means to absorb these fees, it is still a very viable payment option.

On the consumer’s side, it is essential to note that this is only an affordable model if they make payments on time - interest charges can pile up on consumers if they miss payments. This is a crucial piece of info that consumers need to be aware of. Buy now, pay later can seem like the next best thing for our wallets, but much like any credit-based payment option, there is still financial responsibility.

A report from IBIS World predicts the buy now, pay later industry will grow at 9.8% annually over the next five years, eventually exceeding $1 billion. What does this mean for businesses? Not only is this trend growing to be an expected checkout option - you could be raking up to 30% more in sales, diminishing purchase hesitation, and increasing brand loyalty.


Should Bambora offer a buy now, pay later option? Give us a shout in our Ideas Portal and let us know.