Payments and fintech
Buy now, pay later (BNPL)
Paying for a purchase in a few interest-free instalments, with the merchant paying a fee.
Last reviewedWhat does Buy now, pay later (BNPL) mean?
Buy now, pay later lets a shopper split a purchase into a few instalments, commonly four payments over six weeks, usually with no interest if paid on time. The BNPL provider, such as Klarna, Affirm, Afterpay or Tabby, pays the merchant up front and collects the instalments from the shopper. Its main income is a merchant fee, typically higher than a card MDR, which merchants accept because BNPL can raise conversion and basket size; late fees and interest on longer plans add more. Example: on a 200 order with a 4 percent merchant fee, the merchant receives 192 and the shopper pays 50 four times. The main risks are credit losses and funding costs when interest rates rise.
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Related terms
- Merchant discount rate (MDR)The total fee a merchant pays to accept a card or digital payment.
- Take rateThe share of each transaction's value that a platform keeps as revenue.
- AOV (average order value)Revenue divided by the number of orders.
- Cost of riskLoan loss charges as a share of loans, usually quoted in basis points.
- Interchange feeThe fee the merchant's bank pays the cardholder's bank on each card payment.
- IssuerThe bank or firm that gives a customer a card and, for credit cards, takes the credit risk.
- AcquirerThe bank or firm that lets a merchant accept card payments.
- Card scheme (card network)The network that sets the rules and connects issuers and acquirers, such as Visa or Mastercard.