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What is Buy Now, Pay Later (BNPL)?

With the growing popularity of on-demand services and the rapid development of e-commerce, more and more consumers want to be able to get their products quickly and pay later.

Banks came up with a solution to this problem long ago, but providing credit schemes to customers often makes arrangements seem complicated. This usually involves submitting various documents, and the risk of declining a loan can be relatively high. That’s why FinTech start-ups and businesses have developed Buy Now, Pay Later (BNPL) solutions.

Buy Now, Postpaid Financing has become relatively fast-growing among buyers, despite the real boosts they received during the Covid-19 pandemic. E-commerce sales have skyrocketed, and customers trapped in their homes have begun to buy more than they did in the pre-pandemic era. With the BNPL service, customers can buy as much as they want. However, there are certain risks associated with this financing option.

This article describes what BNPL is, how it works, and what the pros and cons of this type of loan are.

What does it mean to buy now and pay later?

Buy Now, Pay Now is a type of short-term loan that allows customers to buy products in the same installments, often interest-free. BNPL is ideal for buying consumer goods. For example, we do not use BNPL to acquire real estate or pay for college loans.

Instead, you can buy things at e-commerce stores or physical stores. In other words, “buy now” and “deferred payment” are just one of the most convenient payment options offered by online and offline shops.

Various FinTech companies such as Klarna, PayPal and American Express offer “buy now” and “deferred payment” services.

The number of BNPLs offered is steadily increasing. According to Statista, global use of services in domestic e-commerce payments increased from 0.4% in 2016 to 3% in 2021, Sweden-25%, Germany-20%, Norway-18. Most popular in%. , Finland – 13%, Denmark – 12%, Netherlands – 12%, Australia – 11%, New Zealand – 10%, etc.

There are several reasons consumers prefer to use BNPL solutions over credit cards. Here are some of them:

  • Due to the pandemic financial instability and the inability to pay for goods with one-time payments, customers have split their payments into smaller pieces.
  • Possibility to buy many items at once because the initial payment is less than 50% and the remaining total is split into weeks or months.
  • Unlike many credit services, BNPL performs a soft credit check. That is, the service does not withdraw credit points from the customer’s credit score.
  • Simple and easy to arrange. For this reason, BNPL is also known as a “POS installment loan” because it is readily available to customers at the checkout counter.
  • BNPL provides a specific date on which the installment payment should be covered by the payment, so the buyer is always aware of when the next payment will be required.

How does it work to buy now and pay later?

If you choose the BNPL solution, the customer will get a mini loan divided into several installments. You can pay weekly, biweekly, or monthly. The payment period depends on the specific terms of service.

BNPL usually charges interest on your use of the service, but often offers an “interest-free” period. Therefore, if the customer is able to pay the balance during the interest-free period, the customer will not be charged any interest. However, if the buyer misses the payment, the unpaid installment payment must be paid at the unpaid interest.

This is a step-by-step example of a “buy now” and “pay later” mechanism.

  1. The customer bought $ 300 and decided to use the BNPL payment option. Payment options can be found in the shopping cart on retail e-commerce sites or at the checkout counters in offline shops.
  2. BNPL performs a customer credit score check (most often a soft credit check) to determine if the customer has access to the service.
  3. Once the customer is approved, you will have to pay a small down payment. For example, 20-30% of the total amount.
  4. The remaining amount is evenly divided and must be paid before a certain date.
  5. The customer receives the purchased item and pays the remaining amount by check, bank transfer, debit card deduction, bank account, or credit card. In most cases, the total will be automatically deducted.

Advantages and disadvantages of buying now and paying later

Like other services, BNPL has its strengths and weaknesses. Let’s look at the most important ones.

BNPL advantage

No hard credit check

Many credit lenders perform a hard credit check to understand if a client can use the service. This type of check can remove some credit points from the client’s credit score, but does not guarantee that credit will be provided.

BNPL providers, on the other hand, soft-pull client credits primarily without compromising the credit score. In addition, the amount loaned is not important, so it is much easier for customers to get approval for a BNPL loan.

Interest-free period

BNPL companies are interested in getting more clients and staying ahead of the competition. As a result, they often offer responsible customers interest-free periods and no interest payments.

Convenience and speed

When applying for a BNPL loan, the customer does not have to submit a lot of paperwork or check bank accounts or work-related details. In addition, BNPL performs quick checks to minimize processing time. Payment options are also convenient as clients can pay by debit / credit card, check, remittance, etc.

Disadvantages of BNPL

Postpaid extra charge

BNPL is the perfect solution for responsible customers who always remember to pay on time. Unfortunately, if the buyer misses the payment date, they will usually be charged a late fee that will be added over time.

If there is no payment, the BNPL provider will begin to charge the client higher interest on each due date until full payment has been made. As a result, interest rates can be relatively high, and in some cases even higher than credit rates.

Small credit limit

Different BNPLs range from hundreds of dollars to 1,000 or 2,000 dollars. This is because this service was created for a small purchase. As you can see, the loan doesn’t really depend on your income.

Doesn’t improve your credit score

BNPL overdue payments are not reported to credit bureaus and credit history cannot be improved. However, if you skip some payments, your BNPL provider may report that and your credit score may worsen.

I want to buy more

With BNPL, you can think that you can buy more than you can actually buy. This happens because the BNPL service requires only a small payment for the goods. Therefore, consumers must ponder whether Amazon really needs that unique product, or is it just influenced by their immediate wishes and desires.


Buy Now, Pay Now is a convenient service that allows buyers to quickly get what they want in their online and offline stores. Therefore, retailers are incorporating BNPL lending options into their services to provide their customers with an exceptional experience and enhance their purchasing power.

If you’re also looking for a way to develop a BNPL solution for your digital store or physical store, Scand can help. Scand (dotcom — Software) is a successful FinTech provider with over 20 years of experience in the international software development market.

Image credit: Provided by the author. thank you!

Victoria Puzhevich

Victoria Puzhevich

Lead specialist

A SCAND lead specialist with over 15 years of experience in the IT field, he is keen to share expert advice and experience in the relevant industry.

What is Buy Now, Pay Later (BNPL)?

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