Buy Now Pay Later
What is buy now pay later?
Buy Now Pay Later (BNPL) is a short-term credit product that lets a consumer take delivery of a purchase immediately and repay its cost in scheduled instalments. The first instalment is commonly charged at checkout, and the remaining balance is collected from a linked , debit card, or bank account on fixed dates.
The provider, not the merchant, funds the purchase. It pays the merchant the order value less a per-transaction fee and then carries the credit and fraud risk on the consumer's repayment. That structure is why BNPL became a standard checkout option in and in-store retail, and why merchants treat it as a sales channel rather than a card-processing decision.
Key facts
- Also known as: point-of-sale instalment credit, deferred payment credit, pay-in-4
- Main structures: pay-in-4, where the total splits into four equal instalments; deferred payment, where the full amount is charged after a fixed delay; and longer interest-bearing plans for higher-value baskets
- Who carries credit risk: the BNPL provider, from the moment it approves the consumer at checkout
- Merchant cost: a per-transaction fee deducted before , higher than card processing on the same order
- Regulatory status: varies by market. In the UK, the FCA has regulated BNPL as deferred payment credit since 15 July 2026, requiring provider authorisation, affordability checks, and consumer access to the Financial Ombudsman Service
How it works
- Selection at checkout. The consumer picks the BNPL provider from the payment options and is handed to the provider's hosted flow, in the same way a takes over the payment step.
- Instant underwriting. The provider runs an affordability and identity check in seconds, drawing on data, repayment history, and device and behavioural signals. Each order is assessed on its own, so an earlier approval doesn't guarantee the next one.
- First payment and confirmation. Under pay-in-4 the first instalment is charged immediately; under deferred models nothing is taken yet. Either way the merchant receives an approval and releases the order.
- Merchant settlement. The provider pays the merchant the order value less its fee, on the provider's own settlement cycle rather than the card scheme's.
- Repayment. The provider collects the remaining instalments on the agreed dates and handles reminders, late fees, and collections itself.
Why it matters
- Basket size. Splitting the price removes the upfront cash constraint on a purchase, which lifts average order value on higher-ticket items.
- Risk transfer. Because the provider funds the purchase, an unpaid instalment is the provider's loss and the merchant keeps the settled amount.
- Different dispute path. A BNPL order sits outside card scheme rules, so a dissatisfied consumer raises a complaint with the provider rather than filing a through an issuing bank. Evidence requirements are set by the provider's own policy.
- Checkout coverage. Providers are licensed market by market, so a merchant selling across regions needs several BNPL integrations to cover the footprint a single card network already reaches.
Common issues
- Reconciliation gaps. Provider settlement files arrive on a different schedule and net fees differently from card settlement, so orders can sit unmatched in the ledger until the provider's report lands.
- Refunds against an active schedule. A on a partly repaid order requires the provider to recalculate the remaining instalments, and collection continues until it does.
- Silent declines. When underwriting rejects a consumer, the order is lost at the payment step unless the checkout falls back to another method.
- Mismatched expectations on protections. Consumers who expect card-level rights don't automatically get them; what applies depends on whether the market regulates BNPL as consumer credit.
