What to know before your business adds buy now, pay later

“Buy now, pay later” is becoming commonplace at major retailers like Target, Ikea and Macy’s. More and more small business owners are also allowing their customers to pay in installments.

In fact, 55% of local businesses use buy now, pay later online and 5% offer it as an in-store payment option, according to a February survey by payment information site PYMNTS.com.

If you’re considering buying now, pay later for your small business, here’s what you need to know.


Buy now, pay later involves three parties: the customer, the merchant and the supplier buy now, pay later. When a customer makes a purchase, the vendor pays the merchant in full, less fees. Then, the customer reimburses the supplier in installments.

According to a 2021 briefing from the Federal Reserve Bank of Kansas City, buy now, pay later transactions cost merchants between 1.5% and 7% of a customer’s total purchase amount, compared to 1% to 3%. % for most debit and credit cards.

For example, suppose your customer splits a $400 purchase into four payments of $100 each. If you buy now, pay later, the provider charges a 5% fee for this service, they will pay you $380 upfront for this transaction and collect the $400 from the customer over time.


Buy now, pay later may cost more than other payment methods, but advocates of the service say it brings additional benefits.

“We generally ask our retail customers not to see us as a payment option, but as a new customer acquisition channel,” says David Sykes, head of Klarna North America.

According to the PYMNTS.com survey, a higher percentage of Millennials and Gen Z shoppers are interested in Buy Now, Pay Later compared to other generation respondents, particularly at luxury stores and specialized.

“If you’re a boutique, if you’re artisanal, if you’re a high-margin business, (serving younger customers) gives you the opportunity to have longer-term value for that customer,” says Julian Alcazar, a Payments Specialist with the Federal Reserve Bank of Kansas City.

Buy now, pay later can also encourage more customers to increase their spending. This has been the case for online sustainable clothing marketplace Wearwell.

Wearwell began accepting buy now, pay later after receiving a grant from Klarna’s Small Business Impact Initiative in 2021. Today, customers who use Klarna spend around 76% more than those who don’t, according to company co-founder and CEO Erin Houston.

“It just reduces friction when it comes to adding one more thing to their cart or choosing to splurge on that purchase they really want,” Houston says.

Buy now, pay later isn’t just for retailers. The Alcazar has seen a dentist and a mechanic accept installment payments in recent years.

“When emergencies happen, they don’t happen on payday,” Alcazar says. Buy now, pay later can allow customers to get the service they need right away, meaning the merchant can complete the service – and get paid – sooner.


In December, the Consumer Financial Protection Bureau launched an investigation into five buy-now-pay-later providers, including Klarna. Officials raised concerns about the amount of customer debt, how these companies use customer data, and adequately disclosing their fees and dispute resolution processes.

Buy now, pay later, providers will have to adapt to potential regulations, says Brett Worick, vice president of BNPL and point-of-sale lending at First National Bank of Omaha. And as this payment method becomes more popular, he says, buy now, pay later, providers will need to learn how to manage the risks of these types of loans, which may mean their offerings will change.

“It’s almost like risk is something we don’t even know yet,” says Terri Bradford, senior payments specialist at the Federal Reserve Bank of Kansas City.


When buying from a buy now, pay later supplier, Bradford says “it’s not like there’s one size fits all.”

Buy now, pay later, apps won’t be your only options – banks also offer financing at checkout. For example, First National Bank of Omaha launched its own buy now, pay later service last fall.

In addition to helping businesses offer over-the-counter financing with payment terms of a few months, FNBO offers point-of-sale loans with terms up to 10 years.

“It’s really just a new way to lend money to customers in the more digital and instant age,” says FNBO’s Worick.

Find a buy now, pay later provider that integrates with your point-of-sale system. If you have a physical location, note that some vendors are now available in-store as well as online.

It’s also important to choose a vendor you trust to represent your business, as buyers don’t always distinguish between a merchant and the third party they use for payments.

“Do your due diligence on who that partner is, what their terms are, what they do for the consumer,” Bradford says, “because they are your customers.”


This article was provided to The Associated Press by personal finance website NerdWallet. Rosalie Murphy is a writer at NerdWallet. Email: [email protected].


NerdWallet: What is buy-it-now, pay-later? https://bit.ly/nerdwallet-what-is-buy-now-pay-later

NerdWallet: 6 Buy Now, Pay Later Apps in 2022 https://bit.ly/nerdwallet-buy-now-pay-later-apps

NerdWallet: What is a Point of Sale Loan? https://bit.ly/nerdwallet-loan-at-checkout

NerdWallet: what is a point of sale system? Cost, capabilities and examples https://bit.ly/nerdwallet-what-is-a-pos-system

“BNPL and the In-Store Opportunity: Why Merchants Need to Offer Point-of-Sale Payment Flexibility” was produced by PYMNTS.com and Zip. Researchers surveyed 2,025 consumers in the United States on November 23-24, 2021 about their opinion of BNPL as a method of short-term credit. Respondents asked about their use of BNPL as a payment option, how they view merchants who offer BNPL, and how its availability affects their purchasing and payment decisions.

PYMNTS.com and Zip. (February 2022.) “BNPL and the In-Store Opportunity: Why Merchants Need to Offer Point-of-Sale Payment Flexibility.” https://www.pymnts.com/wp-content/uploads/2022/02/PYMNTS-BNPL-And-The-In-Store-Opportunity-February-2022.pdf

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