Buy now, pay later for merchants: A comprehensive guide

Are you happy with your buy now, pay later solution? Learn what’s new and how to get the most from buy now, pay later for merchants.

If you've ever bought something on layaway, you've used a traditional, in-person form of buy now, pay later. Layaway is typically a service offered by brick-and-mortar stores in which they will store an item for you (or “lay it away”) while you pay them over time.

Buy now, pay later for merchants improves on this concept for ecommerce. Rather than waiting for payment and then releasing the item, merchants get paid up front and leave the management of repayment to a third party. Buy now, pay later (BNPL) solutions benefit customers too, allowing them to get what they need, when they need it.

Through 2030, buy now, pay later for business is expected to boom¹. From in-store installment offers to deferred-interest store cards and third-party BNPL providers, many businesses already offer some form of BNPL — and if you don't, you may be missing out on quite a few buy now, pay later benefits. In fact, 84% of PayPal shoppers surveyed said paying with PayPal Pay Later had a positive impact on their purchase experience.²

For enterprise-level organizations, the stakes could be even higher. But what's the difference between enterprise-level BNPL options? And how can you be sure you’re getting the most from your BNPL provider?

The rise of buy now, pay later for merchants

While the concept of split installment services for businesses has been around for decades, BNPL as we know it has dramatically increased in popularity over the past several years. EMARKETER predicts that more than 93 million U.S. shoppers will use BNPL services in 2024³ as consumers look for ways to avoid accumulating credit card debt – a trend that began ramping during the pandemic.

How buy now, pay later works for merchants

Many merchants who offer BNPL rely on a third-party service provider. That means the process involves three parties:

• The customer: The person buying the product is arguably the most important piece of the puzzle.
• The BNPL provider: The third-party provider facilitates the transaction.
• The merchant: Businesses choose BNPL to help increase their sales and average order value.

The merchant pays the provider a fee at the time of the transaction, and then the provider oversees the actual repayment of the loan. Here are some of the most common questions about how it works for merchants.

Does buy now, pay later require a credit check?

Most types of buy now, pay later solutions for merchants do require a credit check to help providers ensure that they will be paid back. The customer will enter the necessary details and the provider will run a credit check on the spot. Sometimes only a soft credit check is needed, which doesn’t affect customers’ credit scores. Other types of BNPL may require a hard credit check, which can impact customers’ credit scores.

PayPal Pay Later, which includes Pay in 4 and Pay Monthly,⁴ makes speedy decisions using historical data and advanced risk modeling to let customers know in seconds if their application is approved. Once the customer is approved, the transaction can be completed.

How much do merchants typically pay for buy now, pay later?

When the transaction is processed, the BNPL provider typically will take the agreed-upon percentage out of the total amount. They can then remit the remaining amount to the merchant. There are several factors that could go into the contracted fee, including total purchase volume. The buy now, pay later merchant fees usually involve a percentage of the transaction as well as a flat fee.

Large organizations will likely need to get a quote to find out exactly what their fees might be.

When does the merchant get paid?

One of the biggest benefits of buy now, pay later for merchants is that the business gets paid up front, while customers are able to pay over time. Merchants typically receive payment within one to three days, and the process is similar to a credit card.

What is the customer experience like?

It may seem that the first step is for the customer to put an item in the cart. However, dynamic promotional messaging, which advertises BNPL options earlier in the buying journey – for example, on product pages – can actually help drive revenue. Globally, with upstream messaging, average order value for merchants is 55% higher than the standard PayPal average order value.⁵

Once a customer starts the checkout process, they can typically click to pay with buy now, pay later as they would any other payment option. From there they'll be prompted to add their information, apply for a plan, choose their plan if approved, and complete checkout. Depending on the option they choose, an initial down payment may be due.

How is payment collected from the customer?

Another benefit of BNPL for merchants is that it then becomes the BNPL provider’s responsibility to manage repayments. That means merchants don't take on the financial risk of lending. The customer will go through the provider’s app or website to make their payments. With PayPal Pay Later, customers can conveniently see status, make a payment, and review plan details right within their PayPal account.

What about returns?

Because the loan repayment agreement is with a third-party provider, the return process can vary. On the merchant side, some BNPL providers may require extra steps for returns.

With PayPal, when a customer returns something they purchased with Pay in 4 or Pay Monthly, merchants simply use our standard refund process and we provide a credit to the customer.

How to become a buy now, pay later merchant

Buy now, pay later for merchants is increasingly becoming a must-have to consider. If you don't already offer BNPL, getting started doesn't have to be overwhelming. And if you do already offer it, now is the perfect time to consider your options and learn how you can better leverage BNPL, for example by using dynamic promotional messaging. Here's what you need to do.

Consider various types of BNPL

Not all buy now, pay later for business is the same. There are several different types offered:

• Short-term installments are typically BNPL plans where payments are split into four installments and do not have interest charges, although other options may be available.
• Monthly payments are often used for larger purchases. They split up the purchase price into anywhere from 6 to 36 monthly payments, and may include interest charges.
• Deferred-interest credit is a form of financing that many stores offer. The customer pays no interest as long as the loan is repaid within a certain amount of time. However, if the loan is not paid off within the time frame, interest is charged from the purchase date.

Many merchants are choosing to offer short-term installment and monthly payment options. When deciding what you need, consider your product pricing: short-term installments are typically for smaller purchase amounts, while monthly payments are for larger amounts.

For example, PayPal Pay Later has two options: Pay in 4 is designed for purchases from $30 to $1,500, and is split into four interest-free payments. Pay Monthly is designed for purchases from $199 to $10,000 and can be repaid over 6, 12, or 24 months with interest.⁴

Choose the right provider

With the growing popularity of buy now, pay later for merchants, BNPL providers are also proliferating. While at first glance they may all seem the same, there are a few things to consider:

• Trust: 85% of PayPal Pay Later users surveyed trust PayPal to keep their financial information secure, and 84% agree that PayPal offers good purchase protection.⁶
• Reach: BNPL is a favored option by younger shoppers, in particular. A study on Gen Z’s payment patterns showed that they make up 55% penetration in the BNPL segment.⁷ And, according to a recent Lending Tree report, more than half of BNPL users say they use PayPal’s Pay Later options.⁸
• Customer experience: Experiences with less friction are important, especially for younger generations. One report found 50% of shoppers consider the ease of checkout when deciding where to shop,⁹ meaning it could influence their initial trust and confidence in the e-commerce site. Pay Later has you covered: 87% of PayPal consumers using BNPL say that it’s a fast way to pay.⁶
• Fees: Getting the lowest possible BNPL fees can help make a difference for enterprise organizations with millions of dollars in sales. It's worth it to shop around to find the best rate.

Set up your BNPL integration

Once you've made your decision, the actual process for how to become a buy now, pay later merchant is generally straightforward. You'll apply for the service, be granted an account if approved, and then integrate the offering into your ecommerce store. Ease of integration can vary by provider and can even be influenced by your payment processing platform.

With PayPal Pay Later, many large enterprises can offer BNPL across their websites and in multiple countries with a single integration. First, start a PayPal business account and then set up PayPal checkout — Pay Later is included for most merchants. If you already have a PayPal business account, how to set up an item for buy now, pay later could be even easier. Just make sure you're upgraded to the latest version, and Pay Later can be automatically included for applicable items on your website.

Don't forget to promote BNPL

Buy now, pay later for merchants doesn’t end with simply offering BNPL at checkout. You can use promotional messaging to let customers know earlier in the buying journey that you offer a certain BNPL option. And when your BNPL provider is as trusted and familiar as PayPal, you may see benefits.

Which buy now, pay later provider should I choose?

The best buy now, pay later apps for merchants will vary depending on many factors. It's always smart to shop around for the best rates, customer experience, and onboarding. Keep in mind that you can also offer more than one buy now, pay later service — an especially important consideration for global enterprises who may need to reach many markets.

For merchants who want to expand their reach with a trusted BNPL provider, PayPal Pay Later could be a good solution: 84% of PayPal Later users love the PayPal brand.⁶

Looking towards the future of buy now, pay later for merchants

Globally, buy now pay later transactions were estimated to be worth $16 billion in 2023 and predicted to grow to as high as $115 billion by 2032 – a compound annual growth rate of roughly 25%.¹⁰

And, the demographics of credit and buy now, pay later are changing: As Gen Z begins using BNPL options for even small, everyday purchases – from everyday essentials like groceries and drug store goods, to vacation and entertainment costs – shoppers aged 35 and under were found to comprise 53% of BNPL users but just 35% of traditional credit card holders.¹¹

Buy now, pay later for merchants may also face increased regulation. PayPal has years of experience with regulatory compliance and is always monitoring the regulatory environment so we can help large enterprises manage the changing dynamics.

Ultimately the best buy now, pay later option for merchants may come down to the need to choose a large, experienced BNPL provider who can provide the multiple options that enterprises need, as well as guidance and expertise for years to come. PayPal’s reach and customer trust can help enterprises drive conversion, cart size, and loyalty. Reach out to a PayPal payments expert at 1-855-477-5687 to learn more.