Buy Now, Pay Later For Small Business: What You Need To Know About BNPL For Merchants

When it comes to buy now, pay later for business, this modern payment method offers many opportunities. BNPL is an increasingly popular way to encourage both big-and small-ticket purchases, particularly from your Millennial and Gen Z customers. For merchants, buy now pay later (BNPL) isn’t just a way to accept payment: it’s a way to get your customers to spend more at your business so you can become more profitable.

Keep reading to learn more about the pros and cons of buy now, pay later for small business and how to become a buy now, pay later merchant.

What Is Buy Now, Pay Later For Small Business?

BNPL is a type of consumer loan that allows customers to finance a purchase in installments—usually four installments in total. BNPL makes expensive purchases more affordable, which could entice customers to spend more than they might otherwise. While BNPL has received some criticism for causing young consumers to spend outside their means, and similar to credit cards and other electronic payments, they carry some risks to merchants as well. BNPL can be used for both online and in-person purchases.

How Does Buy Now, Pay Later Work For Merchants?

As a merchant, accepting BNPL works similarly to a credit card, in that you’ll receive the full amount of the purchase even though that total won’t leave the customer’s bank account at the time of purchase. Often, merchants will only accept one or two types of BNPL services and may advertise this payment method at their stores or on their websites.

Some POS systems even have BNPL acceptance built-in. For example, Square merchants can accept Afterpay payment at their POS or online store.

Benefits of BNPL For Businesses

Buy now, pay later for small business offers many benefits, which, in a nutshell, are more sales and bigger sales for your business!

BNPL is especially popular with younger shoppers, iPhone users, and online shoppers.

• Encourages Higher Customer Spend: BNPL is useful for financing larger purchases and can help customers afford more expensive items, even if they don’t have a credit card. Popular BNPL service Afterpay claims that using its services increases average order value by up to 18%.
• Drives Online Sales: Online sales in particular are boosted by offering BNPL. Signing up for a BNPL service can take up to several minutes, and it’s easier (and more private) for customers to apply for BNPL from the comfort of home, such as when online shopping, vs. at a store. A recent report on the state of eCommerce from RBC Capital claims BNPL boosts eCommerce conversions by 20-30%.
• One More Way For Customers To Pay: Today’s customers want multiple options when it comes to payments, and BNPL is just one more option to add to your payment offerings. The more payment options you offer, the more sales opportunities you’re creating for your business.
• Appeals To Younger Consumers: BNPL is especially popular among younger consumers, who tend to be the most voracious shoppers. According to eMarketer research on BNPL, 55.1% of Gen Z shoppers will use BNPL at least once this year, compared to 48.6 of Millennial shoppers; a progressively smaller percentage of older generations plan to use this payment option.
• Keeps Your Business Competitive: More and more of your competitors are offering BNPL, and if your business does not have any BNPL options, you may be sacrificing sales to your competition. According to Afterpay, 57% of users that made a purchase with the service said that if the BNPL payment option wasn’t available, they would have searched for another store that offered the option, or not purchased at all.
• Convenient For iPhone Users: As I recently commented on in an article on Apple Pay Later published in Finance Magnates, Apple will soon enter BNPL with its fall 2022 release of its own buy now, pay later service, called Apple Pay Later. Apple Pay Later will let any Apple Pay user pay for a purchase in installments using their Apple Wallet. What’s great for merchants is that because the service will use the Mastercard network, businesses won’t need any special integration to accept Apple Pay Later.

Drawbacks To BNPL For Businesses

Buy now, pay later also has certain cons or drawbacks for merchants. Specifically, it costs a little more to accept BNPL compared to other payment methods, and it can take a little time and effort to perfect your BNPL checkout process.

• Higher Merchant Fees: Fees on BNPL transactions tend to be higher than fees for credit card transactions (see the table below with fees from different BNPL companies). This means your business will pay more for BNPL transactions than if the customer paid with a credit card.
• Integration Isn’t Universal: Not all BNPL services integrate easily with all POS systems or eCommerce website builders. Or in some cases, you may have to pay a yearly fee for a BNPL payment gateway extension. Often, a POS system or eCommerce provider will partner with a preferred BNPL provider but it may not be the one you’d prefer to use.
• Slower Checkout: Since BNPL is technically a loan, customers do have to complete a quick application when they first start using a BNPL service—they can’t just pay near-instantaneously like they can with a credit card or contactless payment. For first-time-BNPL users, this can slow down the checkout process considerably.
• Not All Merchants Accepted: Not only customers, but merchants also have to apply to use BNPL services. A BNPL company will vet your company before allowing you to sell with the service. If your company falls into a certain high-risk category that the BNPL provider does not accept, the provider may not let you accept their payments.
• Fraud & Chargeback Risks: BNPL carries some fraud and chargeback risks for merchants (see below section on what to look out for re: BNPL fraud).

How Do BNPL Companies Pay Merchants?

BNPL companies pay merchants within a few days, in most cases. Typically, you’ll get paid the full amount of the purchase within 1-3 business days. Usually, the BNPL company has is a merchant portal where businesses can track their payouts.

How Much Do BNPL Companies Charge Merchants?

As you can see, BNPL comes with certain requirements and fees when it comes both to merchants and consumers. BNPL merchant fees tend to range from 3.39-6% + a fixed fee (usually $0.30) on each transaction. Consumers aren’t charged any fees unless they are late on an installment payment.

Here are a few more things to note on BNPL fees and eligibility:

• Even if a BNPL company doesn’t charge consumers a late fee, it will likely report the customer’s missed payments to credit bureaus, freeze the customer’s account after a period of time, and send the account to collections.
• BNPL services may run a soft or hard credit check on all consumers who apply.
• When it comes to merchant eligibility for BNPL, it usually has to do with your industry. You can check if your business’s industry is on the BNPL company’s list of restricted industries.
• Payments for the above 6-week installment loans are due every two weeks, for a total of 4 installments.
• BNPL companies are also starting to offer longer-term consumer loans of up to 6-12 months as well as virtual cards.

What Are Some Popular Buy Now, Pay Later Providers?

The top BNPL apps are very similar in that they all offer loans that let consumers pay off a purchase in four biweekly installments. The late fees and transaction fees they charge merchants are all similar as well. There are a few distinctions to note, however.

Affirm

• Affirm is accepted at various big-name retailers like Walmart and Peloton, and also powers Shopify’s Shop Pay installment loans. Affirm integrates with various eCommerce small business solutions including Shopify, WooCommerce, BigCommerce, Wix, and more.
  • Check out our article about what Affirm is and how to add it to your website.

Klarna

• Klarna is accepted at many Millennial-focused nationwide stores like Sephora and H&M, as well as other big brands like Adidas and PETCO.  You can integrate Klarna with Shopify, Shift4Shop, Vend POS, and other solutions.
  • Explore Klarna for business.

AfterPay

• Major retailers like lululemon, Ulta Beauty, Urban Outfitters, Bed Bath & Beyond, and many others offer AfterPay as a payment option to their customers. AfterPay is owned by Square and so it makes sense that your small business can accept AfterPay using your Square POS or Square Online store. AfterPay also integrates with Stripe, Ecwid, Squarespace, and more.
  • Learn more about buy now, pay later options from AfterPay.

Sezzle

• Gen Z-centric Sezzle is partnered with Target, GameStop, Bass Pro Shops, and numerous other brands. It offers free, seamless integrations with small business software like WordPress, Magento, Salesforce, Shopify Plus, and others.
  • Learn more about buy now, pay later from Sezzle.

PayPal Pay In 4

• PayPal Pay In 4 gives PayPal Business Account users a BNPL checkout option to offer customers. Pay In 4 charges the standard PayPal transaction fees, which are not as high as most other BNPL providers. PayPal Pay In 4 is accepted at retailers like Aldo, Fossil, Champion, and others; it integrates with various Volusion, X-cart, OpenCart, WooCommerce, BigCommerce, and other eCommerce software.
  • Decide whether to offer PayPal Pay In 4 to your customers. (Note that PayPal also has a separate longer-term consumer loan service offering 6-month financing on purchases over $99, called PayPal Credit.)

Zip (formerly Quadpay)

• Various retailers, including Fashion Nova, Newegg, and Famous Footwear, accept Zip as a BNPL option. Zip integrates with Shopify, Magento, BigCommerce, and other commerce solutions, allowing retailers to accept Zip payment both online and in-person. (You can also use a few lines of javascript code to build your own integration with Zip.)

How To Become A Buy Now, Pay Later Merchant

If you’re wondering how to become a buy now, pay later merchant, not to worry — the process is really quite easy. You simply need to apply to a BNPL service and then integrate the BNPL service into your online store and/or point of sale system. BNPL companies try to make the process of applying and implementing their BNPL services as quick and painless as possible.

BNPL companies also offer ways for merchants to advertise that you accept their BNPL services, such as web banners and signage.

Buy Now Pay Later Risks For Merchants (And How To Avoid Them)

Like any electronic payment form, BNPL is not without its risks. There are a few different types of fraud that criminals can exploit when it comes to BNPL. In most cases, the fraud risk falls back on the BNPL company rather than the merchant using the BNPL service–for example, if the customer doesn’t make their payments, the BNPL service is out the money, not the merchant who offered the service–but in some cases, the merchant can lose money as a result of BNPL fraud.

BNPL Fraud To Watch Out For

The main types of BNPL fraud affecting merchants are customers making BNPL purchases with fraudulent credentials and BNPL chargeback fraud.

With the first type of fraud, a customer may use a fictitious identity or stolen credentials to apply for a BNPL loan. Or, they might find a way to hijack a legitimate BNPL account. If the fraudster uses a stolen credit card or a stolen BNPL account to complete a purchase, the credit card company or BNPL provider may ultimately refund the legitimate account holder, which means you take the hit as the merchant.

Learn more about the second type of BNPL fraud, chargebacks, below.

BNPL & Chargebacks

Fraudulent chargebacks occur when a customer falsely claims they never made a purchase and the merchant has to refund the transaction to the BNPL company, who will return it to the customer. The merchant may also have a chargeback fee.

Chargeback claims are not always malicious—sometimes the cardholder files the charge because someone stole their card to make the transaction, or maybe the customer doesn’t recognize the name of the company that appears associated with the charge on their statement. (Those types of situations are called “friendly fraud.”)

Whatever the reason behind the chargeback, merchants often lose big when it comes to this type of payment dispute. As mentioned in our guide to dealing with friendly chargeback fraud, merchants only win 20%-30% of chargeback disputes.

How To Protect Your Small Business From BNPL Fraud

The fraud risks for merchants associated with BNPL are generally the same as those related to accepting credit cards. However, because BNPL services have less stringent borrower criteria compared to credit cards, one could argue that they even are more vulnerable to fraud than credit cards. There are a couple of things your small business can prevent BNPL fraud:

• Be Selective About BNPL Services:  Larger-name BNPL companies generally have better fraud checks, and some have higher standards than others. Research a company’s security reputation and consumer vetting process before deciding to sell with that service.
• Pay Attention To eComm & POS Security: Your website and point of sale should also have good security if you want to protect against BNPL fraud. When it comes to your shopping cart provider, POS software, and any other online payment solutions you use, be sure these systems have strong security.

FAQs On Buy Now, Pay Later For Business

Is Buy Now, Pay Later A Good Option For Your Business?

Buy now, pay later is an increasingly popular way for customers to check out, both online and in-person, at businesses both large and small. With so many businesses accepting this modern, streamlined form of consumer financing, you may be missing out on sales if you don’t offer a BNPL payment option at your small business. BNPL is not free for merchants, nor is it completely free of fraud risks, but these risks are not fundamentally different from those of credit cards and online payments.

For more insight into buy now, pay later for business, read our article on BNPL profitability for small business websites.