Buy Now, Pay Later (BNPL) explained: How it works, costs, and benefits

As shopping continues to evolve and the payment landscape becomes more fragmented and personalised, offering flexible solutions like buy now, pay later (BNPL) has become a key strategy for small businesses to meet shifting customer expectations.

BNPL has gone from a disruptor to a mainstream payment option – especially for online purchases. The global BNPL e-commerce value reached approximately $340 billion in 2024 and is projected to reach around $580 billion by 2030^.1 In Europe, the market saw a Compound Annual Growth Rate (CAGR) of 20.6% between 2021 and 2024, a trajectory that’s expected to continue as flexible payments evolve.²

Here, we’ll take a deeper look at how BNPL models work and the strategic considerations to bear in mind if you are evaluating them for your business growth.

BNPL is a short-term financing tool that allows shoppers to "buy now and pay later" through a series of instalments, often in weekly or monthly payments. The exact model of individual providers may vary, but typically merchants receive the full price of the goods upfront and the BNPL provider takes on the debt from the consumer.

Unlike a traditional credit card which may carry high-interest rates, pay-later services typically don't charge customers interest or fees if the balance is paid in the agreed time.

Instalment payments allow customers to spread the cost of a good or service over a period of time. Customers can pay smaller amounts on a set schedule, instead of one lump sum, and receive their purchase immediately while managing their own finances.

Typical schemes require a portion of the payment at the point of sale, with the remaining balance paid in regular intervals. While most providers offer interest-free payments, some longer-term loans may have interest charges.

• Accessibility: Breaking down lump sums into weekly or monthly payments makes products accessible to consumers who might otherwise be priced out.
• Competitiveness: Offering these tools helps small businesses meet shifting customer expectations in a fragmented payment landscape.
• Loyalty: Reducing payment barriers helps foster long-term customer relationships and drive future growth.

The lines between digital and physical storefronts continue to blur, with consumers increasingly expecting payment options to sync seamlessly across all channels.⁴

As business owners, disconnected systems create customer friction and operational burdens. Providing a range of choices like BNPL allows you to meet the growing demand for flexibility whether a customer is browsing online or purchasing at a physical card terminal.

Once you’ve chosen a provider, the process of incorporating BNPL into your business should be straightforward. Adding a BNPL button to an online store is often as simple as enabling an option within your website platform, while physical stores can typically have card terminals updated remotely.

By choosing partners who handle these updates, you can offer more flexible ways to pay without needing to be a technical expert.⁶

Because the BNPL provider assumes the responsibility of payment, there should be minimal interruption to your workflow. Shipping and delivery get triggered after the customer makes the purchase, so the order is processed as if it were a full cash payment.

Convenience and smooth processes are integral to growing your e-commerce business. Consider flexible delivery options as another way to empower your customers and give them more control.

Strategically implementing BNPL can solve many common barriers to e-commerce growth. By making your products more accessible, you can attract a wider customer base and improve customer experience.

Here are some other key benefits:

Although customers can split their bills into various payments, your business receives the full order value immediately – minus fees – giving you steady working capital to handle day-to-day operations, payroll, and rent without waiting for individual instalments.

BNPL can increase average order values for merchants by 20-40%, and its adoption often substantially boosts conversion rates – with some tests showing up to 30%.⁵

Offering flexible terms at checkout removes the “sticker shock” that often leads shoppers to abandon their cart at the final stage. The immediate gratification matched with delayed payment options can actually sway hesitant shoppers into purchasing.⁷

Integrating BNPL can be a powerful differentiator for your business. Offering flexible payment options encourages repeat purchases and is a practical way to foster long-term customer loyalty.⁸

It also allows you to appeal to a broader demographic, particularly Millennials and Gen Z. These emerging consumer segments are often less inclined to use traditional credit and instead value the ability to manage their spending through interest-free instalments.⁷

Regulatory pressures on BNPL have intensified over the last year, with new consumer credit and data protection laws requiring greater transparency and accountability from providers.²

For small businesses, this can be a strategic win. While enhanced checks may slightly adjust the flow of checkout, they ensure customers are qualified to pay, reducing your risk of payment disputes and building trust.

To maximise the value of BNPL, you’ll want to find the right provider and ensure payment systems are fully integrated with your operational workflows.

Even though providers are responsible for debt collection, customers may direct frustrations regarding late fees toward the merchant. It’s essential to choose partners who align with your brand values and maintain high service standards.

• Synchronised fulfilment: Shipping should be triggered immediately once a transaction is authorised. This ensures customers receive goods before their first instalment is due, a key requirement for smaller merchants to avoid disputes.⁶
• Automated returns: Ensure your logistics partners are digitally linked to your provider so that confirmed returns automatically pause or adjust payment plans. This protects your reputation and ensures compliance with merchant payment standards.⁸
• Policy transparency: Clearly stating how shipping costs and return windows intersect with instalments reduces late-payment disputes and builds long-term loyalty.⁸

By offering the flexibility that customers now expect, your business can unlock new pathways to growth. From improving conversion rates to addressing shopping cart abandonment, BNPL is a proven tool for scaling your operations.

Disclaimer: The information provided on this page does not constitute legal, tax, finance, accounting, or trade advice, but is designed to provide general information relating to business and commerce. The FedEx Small Business Hub content, information, and services are not a substitute for obtaining the advice of a competent professional, for example (but not limited to) a licensed attorney, law firm, accountant, or financial adviser.