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Aug 27


eCommerce Buy Now Pay Later is Trending

The Buy Now Pay Later market has never been so hot with brands making headlines every week. Klarna’s valuation has skyrocketed to $45 billion, and Square just acquired Australian Buy Now Pay Later solution Afterpay for $29 billion in the first week of August 2021.

Why is Buy Now Pay Later so popular? What makes it so attractive for merchants? Who are the top solution providers?

At OneStepCheckout we identified this trend would be big as a growing number of our customers, Magento merchants, are integrating BNPL offerings into their Magento 2 checkouts. For you, we thought we’d compile insights so you understand what it’s all about.

Buy Now Pay Later, the new popular payment option for online and offline purchases

First, let’s understand what Buy Now Pay Later (BNPL) is.

BNPL is a payment solution that merchants can offer and allow consumers to get their items straight away but only pay at a later stage. Most often:

  • A First installment is required straight away and the rest can be paid later either monthly, every 6 weeks etc…
  • Or no down payment is required at all and the full amount has to be paid after 14 or 30 days, allowing consumers to receive the item and try it before they pay. This is called “Paid after delivery”.


The first new and very attractive part of this payment method is that consumers often don’t have to pay interest on installments. That’s why adoption has been fast.

No financing middleman

The second new element is that, unlike short-term financing, the agreement often takes place directly between the consumer and the retailers, without the involvement of a third party managing the loan.

Although new technology allowed mobile apps to create a smooth registration process, BNPL solutions can also be used in physical stores. In fact, in the United States, an equal number of BNPL loans are taken up in physical stores vs. online.

Buy Now Pay Later was built for millennials

Buy Now Pay Later is built for consumers who saw their parents and relatives suffer during the 2008 subprime crisis and who suffered themselves during the economic crisis due to the COVID-19 pandemic.

These consumers hate credit, in particular the high fees and the revolving nature of the plans. This is confirmed by recent studies conducted by the Mercator Advisory Group and the Ascent by the Motley Fool.

Frequent BNPL users are young and tech-savvy

  • Highest growth and highest adoptions vs other age groups is the 18-24 age bracket, with 61% adoption.
  • Reluctant to use credit cards.
  • Tech-savvy.
  • Middle income and skews toward those with sufficient credit.
  • Equally distributed across the US.

COVID-19 is a key driver for the adoption of BNPL 

As of March 2021, Ascent reported that 56% of Americans have used a Buy Now Pay Later service. Moreover, half of the people who have never used buy now, pay later solutions are at least somewhat likely to use them in the next year.

The pandemic’s economic hardship boosted the trial and repeat usage of BNPL.

Respondents cite related reasons as key drivers for choosing BNPL, including:

  • The need to conserve cash in case of an emergency: 41.31%.
  • Increased shopping spend 30.04%.
  • Lost income and needed a way to make purchases: 24.62%.

Late payment risks

Over a third of US Buy Now Pay Later users say they’ve made a late payment or incurred a late fee. Consumers aged 18 to 24 are the most affected with almost 50% of them not paying on time with 43.80% saying they were “somewhat” or “very” likely to make a late payment in the coming 12 months!

Only 30.91% of consumers say they’re very unlikely to be late, while 17.74% say they’re somewhat unlikely to be late.

Habit is the key barrier against the usage of BNPL

Among the US consumers who said they will not use Buy Now Pay Later solutions, the top reasons are:

  • 44.68% say they can use cash or a debit card instead.
  • 27.15% say they can fall back on credit cards.
  • 10.86% are hesitant to use Buy Now, Pay Later because they don’t understand how it works.
  • 10.29% have never heard of buy now, pay later.

Buy Now Pay Later drives an increase in checkout conversion, repeat purchases, and average transaction values (ATV)

Because of its flexibility and convenience for shoppers, merchants who offer Buy Now Pay Later solutions get real advantages vs those who don’t.

Based on promises and results quoted by the various BNPL players, merchants can expect an increase in important KPIs:

  • New customers (more traffic, more visitors).
  • Conversion at checkout +20% to 30% improvement on average.
  • average order or transaction value (also called basket size) +40% up to +85% higher.
  • repurchase rate, up to 80% increase.

In addition to this, merchants benefit from even more advantages:

  • They don’t bear the credit risk.
  • They benefit from exposure to BNPL brands’ merchant networks as well as marketing.

Top eCommerce Buy Now Pay Later Solutions

With half of the Americans using BNPL and total lending forecasted to exceed 100 Billion USD according to the Mercator Group, there is a lot at stake and the biggest market opportunity for BNPL players.

According to Ascent surveys, 48% of respondents said they use PayPal, while 35.6% said they use Afterpay and 25% reported using Affirm.

PayPal (NASDAQ: PYPL), headquartered in San Jose, was created in 2005. The company spun off from eBay Inc and went IPO on its own in 2014. 

PayPal already reached 400 million active accounts globally and is present in almost every country in the world with TPV (total payment volume generated through PayPal) exceeding 1 trillion USD for 2021.

Bill me Later/ PayPal Credit

In 2008, PayPal acquired Bill Me Later, a Maryland-based startup that offered a deferred payment and financing option through a network of well-known retailers such as Apple, Zappos, and Walmart. Today this service is now branded as PayPal Credit and the open-ended line of credit is managed by another bank.

PAYPAL Pay in 4

PayPal launched its “Pay in 4” product in 2020 in the United States enabling merchants to get paid upfront while enabling customers to pay for purchases between $30 and $1,500 over a six-week period.

Consumer offer:

  • Interest-free.
  • Split payment in 4 and repay one installment every 2 weeks.
  • Starts allowing consumers to repay directly from their bank account as opposed to credit or debit card.

In Q4 2020 the product was used by 3 million unique consumers generating $750M payment volume through 250K unique merchants including Uniqlo, Best Buy, Coach, Aldo, Bed Bath and Beyond.

PayPal’s pay in 4 key success factors are:

  • No Late fees for consumers.
  • No extra fees to merchants as the service is absorbed in the merchants’ existing PayPal fees.
  • PayPal’s unmatched consumer base.
  • Integration with Magento 2.4.3.

Here’s a video on how it works:


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