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BNPL Proliferating in a Highly Consumer Society

1. What is BNPL?

2. How BNPL typically works for consumers

3. Compare BNPL with a credit card

4. Seven reasons to choose BNPL

5. BNPL regulation challenges

6. BNPL trends

7. Most popular BNPL schemes

8. Conclusion: Mindfulness

A very convenient way to purchase when short on money is Buy Now Pay Later (BNPL). Targeted for people who either do not want or cannot spend at once, or just want to plan their spending better, sometimes BNPL encourages consumers to make impulsive and unwanted purchases beyond their means. More and more of VR Team’s clients want to integrate a BNPL option to their online store checkout. But let us see what BNPL is, how it works, especially compared to credit cards, and why some consumers fall so easily into the trap of spending more than they can afford. We will cover some of the BNPL regulation challenges, and trends and finally mention the most popular BNPL schemes.

1. What is BNPL?

People shop online

Buy now, pay later (BNPL) is an alternative payment method that allows customers to purchase products and services without having to commit to the full payment amount upfront. In doing so, customers can immediately finance purchases and pay them back in fixed installments over time. Nothing new so far. As an alternative to credit cards, this scheme of financing has been popular long enough. So, what is the difference and why has BNPL flourished during the last 5 years?

BNPL is proliferating globally, accounting for at least 3% of global e-com transaction value in 2022 and projecting to 5.3% share by 2025. BNPL is led globally by Klarna, Afterpay, Affirm and dozens of smaller local competitors emerging to compete for this fast-growing payment segment.

As of 2022 over 60% of consumers have reported using a BNPL service. Out of those consumers, 46% are still making payments. The average debt owed by consumers using a BNPL service is $883.

2. How BNPL typically works for consumers

First, the customer selects the BNPL option during checkout. He should provide at that point some personal and financial information. Second, the BNPL provider runs a credit risk check on the customer to ensure he/she is creditworthy. If the consumer is approved, the BNPL provider pays the merchant the full amount for the purchase. The customer is then required to make a series of payments to the BNPL provider over a short period of time, typically over several weeks or months. Depending on the BNPL provider and the terms of the agreement, the customer may be charged interest or fees for using the service. If the customer fails to make payments on time, they may be subject to additional fees, penalties or even negative effects on their credit score. BNPL providers may have quite different terms and conditions for small loans compared to credit cards, so customers should carefully read and understand the terms of the agreement before using the service.

3. Compare BNPL with a credit card

Consumers use their credit card for purchases

Why is BNPL so popular and what should the consumers consider? From consumer point of view, products differ from typical credit products (online loans, credit cards) in that they offer a simple and easy activation process which does not require providing extensive personal data, and it is firmly nested in the purchasing process with merchants and generally happens much faster compared to applying for a credit or getting a credit card issued. While Buy Now Pay Later and credit cards are both forms of payment that allow customers to make purchases without paying the full amount upfront, there are some important differences between the two:

1. Credit Limit: credit cards always have a pre-approved credit limit that allows customers to make purchases up to a certain amount. With a credit card, you can carry a balance or use your credit line indefinitely. BNPL, on the other hand, typically has a smaller limit or may only be available for certain purchases.

2. Interest rates: Usually credit cards charge high interest rates on unpaid balances, while BNPL providers may offer interest-free periods or lower interest rates for their customers. Still, if the customer does not pay the full amount within the interest-free period, he may be subject to high fees or interest charges.

3. Repayment period: Credit cards require customers to make a minimum payment each month, while BNPL providers typically allow customers to pay on a fixed repayment schedule. You know your payment amounts up front, and each payment will be the same.

4. Credit Score: Using a credit card responsibly can help build or improve a customer's credit score, while using BNPL may not have the same effect.

5. Fees: Both credit cards and BNPL providers may charge fees for various services, such as balance transfers, cash advances, or late payments. Customers should carefully review the terms and conditions of each before deciding which option is right for them.

4. Seven reasons to choose BNPL

In the light of the above, as a consumer you enjoy several potential benefits when using a BNPL service:

1. Flexibility: BNPL can offer more flexibility in payment options compared to credit cards. Instead of being required to make minimum payments each month, BNPL providers typically allow customers to pay in fixed installments over a longer period of time. Moreover, BNPL services usually offer options at the point of sale. As a customer, you can even pay the full purchase using the BNPL service, or you can split your purchase between BNPL and some other payment source, like a debit card. Additionally, you are not bound to the credit card yearly fees when not using the payment option.

2. No interest: Most BNPL providers offer interest-free periods, which can make it a more cost-effective option for customers. This means that if you choose a short loan period and make your payments on time, you can borrow money without paying any interest.

3. Lower fees: Some BNPL providers may charge lower fees compared to credit cards, particularly for balance transfers, cash advances, or late payments.

4. Accessible to more people: BNPL providers may be more accessible to people who don't have access to credit cards or have a limited credit history. This can make it a more inclusive payment option for a wider range of customers.

5. Simplicity: The application process for BNPL is often simpler and faster than applying for a credit card, and the approval process can be completed within minutes.

6. Budgeting: BNPL can help customers manage their budget by breaking down payments into smaller, more manageable amounts.

7. Avoiding Credit Card Debt: For customers who have had issues with credit card debt in the past, BNPL can offer a more controlled way to manage their payments. Most BNPL vendors run soft credit checks on their clients to affirm their eligibility for a loan. On the other hand, if you are late in your payments to your BNPL vendor, this does get reported to credit bureaus, much like when you’re late on credit card payments.

Overall, BNPL can be a convenient and flexible payment option for customers who want to manage their budget and make purchases without paying the full amount upfront. However, it's important to carefully review the terms and conditions of each BNPL provider to ensure that it's the right option for your needs.

5. BNPL regulation challenges

Regulations and laws

There are enough reasons for consumers to choose BNPL. But are consumers that use BNPL generally well protected by regulation, as compared to other financing options? Indeed, the BNPL industry remains unregulated or self-regulated in many countries. As a Deloitte legal report states, BNPL market in the face of regulatory challenges, on the one hand, and consumer expectations, on the other, are trying to cooperate to provide the most innovative BNPL solutions. In their attempts to join this group, banks have the most barriers and challenges in the implementation of financial products, but also the greatest experience and possibility to scale them.

As BNPL products are usually regulated by consumer credit regulations, supervision should be made by the authorities supervising the financial market, authorities tasked with consumer protection (particularly in the financial markets), and authorities responsible for compliance with personal data protection regulations.

In countries like Poland, Austria, Cyprus, Luxemburg, Italy and United Kingdom, the regulations of individual European Union countries provide for exceptions to the application of consumer credit regulations, in particular for free loans, insignificant amounts of loans or loans granted for short periods. In practice, however, these exemptions are used as means to replace formal mechanisms to protect the consumer from over-indebtedness for better customer experience and product innovation. The planned amendment to the Consumer Credit Directive provides that free loans will no longer be exempt from the regime of consumer credit regulations. This means that, from approximately 2024, when the changes are expected to come into force, many BNPL products will have to be fundamentally rebuilt and it is possible that we will no longer see them in their current form. A particular example is the BNPL market in the UK, where loans are granted based on an exception to the application of consumer credit rules and therefore are not subject to supervision and licensing. Perhaps for this reason, sales of BNPL products in the UK, Australia and the United States led to a significant level of accumulating consumer debt between 2020 and 2021. This, in turn, initiated a proposal for changes in the provisions of UK law aimed at eliminating this exception. Additionally, BNPL providers are to be subject to both licensing and supervision by the FCA (Financial Conduct Authority). Currently, the proposals have not yet been accepted, but the proposed legislative changes specifically state that the number of repayments should not be more than 12; the repayments must be made over no more than 12 months; and that no interest or fees should be charged for the credit.

This is all good news for consumers but let us see them happening.

6. BNPL Trends

BNPL solutions found fertile ground in Europe, where they’ve grown in just a few short years from fringe upstart to the very center of the mainstream of contemporary global payments options. BNPL solutions accounted for over 8% of Europe’s regional e-com and nearly 2% of regional POS transaction value in 2021, each more than twice the value of the next highest regional BNPL tallies. The three top e-com markets for BNPL are all located in Europe, with BNPL as the leading e-com payments option in Sweden (25%) and among the leaders in Germany (20%) and Norway (18%). BNPL is widely preferred in Europe for its ease of use and flexible financing, which leads to every merchant looking to offer BNPL to satisfy growing consumer demand. While the bigger BNPL companies are prepared and may even welcome appropriate regulation, smaller providers may find regulation burdensome. This is exactly the point where we can start to see some consolidation of those companies. There are currently so many companies that offer BNPL services that some form of consolidation of the market is inevitable.

As for the other huge market, in the United States from 2019 to 2021, the number of BNPL loans originated in the U.S. by the five lenders it surveyed grew from 16.8 million to 180 million, a September 2022 report from the Consumer Financial Protection Bureau (CFPB) in the USA states. This kind of financing was once most popular for beauty and apparel purchases, but it has branched out into other areas like travel, pet care, groceries, and gas. Most BNPL loans range from USD 50 to USD 1,000.

Another CFPB report from March 2023 found that users of buy-now-pay-later services were far more likely to have bank overdrafts, payday loans, pawn loans, and other high-interest financial products, indicating that they are more financially vulnerable than non-users of BNPL financing. Of those who use BNPL financing, the CFPB found that Black, Hispanic, and female consumers were more likely than average to use it, as were consumers with household incomes between USD 20,000 and USD 50,000.

7. Most popular BNPL schemes

There are several popular Buy Now Pay Later (BNPL) schemes available today. Here are some of the most well-known providers:

affirm logo

Affirm is a BNPL provider that offers financing options for purchases ranging from $50 to $17,500. They offer interest rates ranging from 0% to 30%, depending on the length of the repayment period. Affirm is among the biggest BNPL vendors, and it is prominently offered as a payment option at big retailers like Amazon and Target. For short-term loans (four payments with two weeks between each payment), Affirm charges no interest and no fees. Longer-term loans require interest payments (ranging from 10% to 30% APR, depending upon your credit) but still no fees. If you are shopping at retailers that don’t already partner with Affirm, there’s still a good chance you can use the service via a virtual card.

afterpay logo

Founded in 2014 in Sydney, Australia, Afterpay is now owned by US-based Block (formerly Square). Afterpay has millions of global customers and hundreds of thousands of merchant partners now using the platform across Australia, the US, Canada, the UK, New Zealand, and the EU (where it is called Clearpay). Afterpay’s business model is completely free for customers who pay on time – helping people spend responsibly without incurring interest, fees or extended debt. Afterpay allows customers to split their purchases into four interest-free payments over six weeks. It is even larger than Affirm, as it partners with over 100,000 retailers. One of Afterpay’s prominent features is a smart credit limit tool that creates a spending limit for shoppers based on their personal credit history. This ideally prevents them from spending more than they can pay back. It also offers consistent reminders to make payments, and its virtual card service is easy to use. Unlike Affirm, Afterpay does charge late fees, but these will never apply if you make your payments on time. Its interest rates fall into the same 10% to 30% range as Affirm.

Klarna logo

Klarna is another popular BNPL provider that allows customers to split their purchases into four interest-free payments over six weeks. They also offer longer-term financing options with interest rates ranging from 0% to 19.99%. Klarna was founded in Sweden in 2005. It now reports over 85 million customers, and it partners with hundreds of thousands of merchants worldwide. Depending upon the type of borrowing you do, Klarna may run a soft credit check or a hard credit check. Rather than set strict borrowing limits, Klarna uses a proprietary metric it calls Purchase Power. Its official website describes Purchase Power as “an estimated amount based on factors such as your payment history with Klarna and your outstanding balance.” If you have good credit and a solid payment history, you may be eligible for larger point-of-sale loans from Klarna than from most other BNPL vendors. When you do pay interest, it will max out at 25%.

quadpay logo

Quadpay is the American Buy Now Pay Later (BNPL) service, which was created in New York in 2017, and acquired by the Australian Zip Group in 2020. The platform allows online buyers to split the purchase into four interest-free installments over six weeks. They also offer longer-term financing options with interest rates ranging from 0% to 30%. Quadpay’s innovative Chrome browser extension offers consumers a BNPL payment option for any e-commerce transaction with any merchant.

sezzle logo


Sezzle is a BNPL provider that allows customers to split their purchases into four interest-free payments over six weeks. They do not charge any interest, but customers may be subject to late fees if payments are not made on time.Sezzle is a BNPL company with a signature feature that lets customers push back payment due dates by up to two weeks. Sezzle does require a 25% down payment on all purchases, but you can pay off most loans without owing interest. Sezzle actively cultivates younger users; it describes itself as “on a mission to financially empower the next generation.” It has over 44,000 retail partners, but it’s less popular among the largest retailers.

8. Conclusion: Mindfulness

While BNPL can help you as a customer make purchases you wouldn't otherwise be able to make at that time, if you're not careful, you could put yourself into a situation where you have more debt than you can afford. And that can not only have an impact on your credit score, but also make you trapped in a debt cycle.

From our experience, BNPL is a much-preferred option which is already a must-have for any major retailer. However, BNPL industry should take responsibility to ensure that consumers act with mindfulness. They might for example add an instant message to their service integrating questions like “Are you sure you can afford this purchase?” or “Think before you buy” that would address the target group of most addicted consumers. Making buyers focused on financial self-control can reduce dependence on BNPL, thereby improving the financial and overall well-being of consumers. If policymakers don’t take measures in the direction of preventing consumers from over-indebtedness, this might have in the long term a negative impact on BNPL brand reputation and image.

Contact us at to learn more about implementing a Buy Now, Pay Later solution with VR Team or book a free call with us.


1. Where Buy Now Pay Later is Going in Europe – The Latest Regulatory Trends – Deloitte Legal Report, October 2022

4. 2022 FIS, Worldpay, The Global Payments Report for Financial Institutions and Merchants


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