Buy now, pay later

What it means

BNPL, buy now, pay later, is a payment method in online shops and stores where the customer receives the goods immediately and pays a few weeks later or in several instalments. A specialist provider offers the service and pays the merchant upfront.

The customer chooses BNPL at checkout just like a card payment; the provider assesses creditworthiness in real time and approves the purchase. The merchant pays a fee, and the customer often pays nothing extra if they pay on time.

For the merchant it resembles factoring: it gets paid at once and the provider bears the non-payment risk. For the customer it is in many cases consumer credit, with all the rules that come with it.

How it works in practice

Online shops add BNPL to raise conversion and average order value, especially for pricier goods. It is integrated much like a payment gateway, and revenue is recognised at the time of sale, not when the customer pays.

The BNPL provider usually pays the merchant the amount net of its fee. Revenue is nevertheless recorded gross and the fee as a finance cost, as with card payments.

When goods are returned the merchant must notify the provider, who adjusts the customer's debt. The provider's summary statements must be matched regularly against orders.

What to watch out for

Customers, especially younger ones, can easily buy more through BNPL than they can repay. EU regulation is therefore extending consumer credit rules to these services, including disclosure of the APRC and creditworthiness checks.

Merchants must present BNPL truthfully and must not push it as the only or default option. Misleading presentation may breach consumer protection rules.