Buy Now, Pay Later (BNPL) has revolutionized retail by transforming the way consumers approach spending and how merchants drive sales. What started as an alternative payment method has become a standard option, with adoption now crossing the 50% mark among businesses. This BNPL growth shift isn’t just about offering flexibility; it’s about meeting the expectations of younger shoppers, lifting order values, and increasing conversions.

At the same time, merchants must weigh the benefits against higher fees, elevated return rates, and new dispute challenges. The following sections break down BNPL’s impact, highlighting both the opportunities and the trade-offs for retailers.

Key Takeaways

• Over 50% of merchants now offer BNPL; usage is highest among Gen Z and Millennials.
• Increases conversions by 20-30% and order values by up to 80%, especially in categories like electronics, fashion, and furniture.
• Preferred over credit cards by many younger shoppers for budgeting and interest-free installments.
• Higher transaction fees (3-6%), more returns, and dispute challenges raise risks for merchants.
• Merchants should target big-ticket or new customer segments, manage returns closely, track customer lifetime value, and negotiate fees.
• BNPL will continue to grow, but its sustainability depends on striking a balance between revenue gains, fees, returns, and regulatory pressures.

The 52% Merchant Adoption Milestone: What’s Driving BNPL Growth

Buy Now, Pay Later (BNPL) has rapidly evolved from a niche offering into a mainstream payment option, gaining widespread adoption among both retailers and consumers. Today, the vast majority of merchants offer BNPL options, and in markets like the United States, more than half of adults report using installment plans for their purchases. Much of this growth is driven by younger shoppers, particularly Gen Z and Millennials, who adopt BNPL at significantly higher rates than older generations.

This matters for retailers because these younger demographics are also among the heaviest online spenders. By enabling installment payments, BNPL not only increases purchasing power but also drives larger average order values and higher checkout conversions. Many retailers report substantial uplifts in sales when BNPL is offered, with some seeing order sizes increase by more than 80 percent compared to standard transactions.

BNPL also appeals to younger shoppers who may avoid traditional credit cards but are drawn to the flexibility of interest-free installments. Retailers commonly see conversion rates rise by 20–30 percent when BNPL options are available. High merchant adoption reflects this impact: around three-quarters of businesses already offer BNPL, with many observing frequent usage among their customers. Despite paying higher transaction fees, merchants recognize that the gains in sales and customer reach outweigh the costs.

Generational differences are especially pronounced. While Gen Z and Millennials not only use BNPL more, they also intend to increase their reliance on it in the coming years, older shoppers remain less inclined to experiment with these services. This widening demographic gap makes BNPL particularly important for retailers targeting younger, mobile-first, and value-conscious consumers. As competition intensifies, major BNPL providers like Affirm and Klarna strengthen their position through co-marketing initiatives with merchants, helping retailers attract new audiences and positioning BNPL as a strategic necessity in today’s marketplace.

Average Order Values and Gen Z / Millennial Spending

BNPL’s most significant impact on retail sales comes from encouraging larger purchases and more frequent shopping. Retailers that provide installment payment options often see order values rise well above those made with traditional payment methods. While the typical BNPL purchase is relatively modest, consumers make multiple installment-based transactions each month, resulting in substantial overall spending.

Many users acknowledge that they spend more with BNPL than they otherwise would, with impulse buying especially common among younger shoppers. This effect is powerful for Gen Z and Millennials, who frequently purchase items they might not have considered without the ability to spread payments over time.

• Higher basket sizes: According to Affirm, BNPL transactions can boost AOV by up to 85% compared to cash/credit sales. Stripe likewise notes ~27% higher overall sales volume for merchants that offer BNPL. These lifts are attributed to reduced purchase hesitation – particularly on expensive items – since breaking a $300 purchase into four $75 payments feels more affordable. Retailers report huge boosts in categories like electronics, furniture, and fashion when offering installment pay.
• Gen Z / Millennial patterns: Younger shoppers are more likely to use BNPL for everyday and experiential spending. Numerator finds that Gen Z and Millennials are about 50% more likely than the average consumer to use installment plans for travel, concerts, and holiday shopping. They also use BNPL for staples – roughly one-third of BNPL users even finance groceries or food deliveries. By comparison, older consumers mostly use BNPL for big-ticket non-essentials. The net effect is that BNPL extends across diverse spending habits, but remains primarily anchored in digitally savvy, middle-income households.
• Payment preferences: Nearly three out of four BNPL users say they prefer it to using a credit card. These users cite easier budgeting and no impact on credit scores as top benefits. Given this, merchants see BNPL as a way to engage customers who might otherwise resist traditional credit – a key factor in younger cohorts’ willingness to spend more via these plans.

Taken together, these trends show that BNPL not only increases average order values but also encourages repeat purchases, particularly among younger demographics. For retailers, it represents a powerful tool to capture higher sales volumes and build loyalty within these fast-growing customer segments.

Managing BNPL Chargebacks and Disputes

BNPL payments introduce new dispute dynamics that merchants must manage carefully. In a card sale, a chargeback reverses the sale and hits the merchant’s account. With BNPL, the provider usually becomes the merchant of record, paying out the sale immediately (minus fees) and then collecting installments from the buyer. In theory, this shields the merchant from immediate risk.

However, suppose a customer disputes the purchase (for non-delivery, fraud, or dissatisfaction). In that case, the BNPL provider initially bears the chargeback loss but will often seek reimbursement from the merchant once the dispute is resolved. For example, Affirm’s policy requires merchants to refund disputed amounts plus a $15 fee if the customer wins the case. This means merchants do ultimately pay for BNPL returns and fraud – they just see it through a different lens.

A 2021 CFPB analysis found roughly 13% of BNPL transactions resulted in returns or disputes (about three times the rate of typical online sales). This elevated rate is driven by several factors unique to BNPL:

• Delayed disputes: Because payments are posted in installments over weeks, customers may not notice or react to unauthorized or faulty charges until much later. By then, evidence (such as tracking information and emails) may be harder to collect.
• Friendly fraud: BNPL lowers the barrier for large buys, which raises buyer’s remorse. Some consumers, after receiving goods, dispute a charge to avoid the remaining payments. In surveys, Gen Z shoppers report significantly higher impulse-regret chargebacks, often using the dispute process as an unintended means of refund.
• Statement confusion: Installment payments often appear on statements under the BNPL provider’s name (e.g., “Afterpay”), not the retailer’s. Customers unfamiliar with the name may mistakenly identify the charge as fraudulent and initiate disputes.
• Refund/return gaps: BNPL transactions involve the merchant, the customer, and the provider. If a customer returns a product, the merchant may refund the sale; however, the BNPL loan may continue to charge installments if not promptly canceled. Any miscoordination can trigger disputes as customers see unexpected charges.

Because of these issues, the best practice is to proactively manage BNPL disputes in the same manner as credit-card chargebacks. Merchants should clearly communicate BNPL terms at checkout (show the BNPL provider’s name and payment schedule) and in confirmation emails, so customers recognize future charges.

Detailed record-keeping is vital: log shipments, proof of delivery, and all communications. If a BNPL refund is needed, merchants should process it promptly through the BNPL platform (cancelling remaining installments) to avoid chargeback risk. Training customer service representatives to handle BNPL returns and follow up on missed payments can also help prevent disputes.

ROI Analysis: Profits vs. Problems

Implementing BNPL is fundamentally a cost–benefit calculation. On the benefits side, the evidence is clear: BNPL can significantly boost sales and profits if managed effectively. Academic research shows that merchants offering installment plans see sales increase by ~20% on average, driven primarily by lower-income shoppers who would otherwise not make a purchase. Most merchants report meaningful uplifts in customer acquisition and basket size. In competitive markets, not offering BNPL can itself be a disadvantage if rivals use it to attract the digital-first crowd.

However, BNPL comes at a cost. Provider fees are typically much higher than standard credit card processing, often ranging from 3–6% per transaction. To determine whether it is profitable, merchants must weigh whether the additional revenue generated is enough to offset those fees. A common rule-of-thumb is that every 1% in added fees requires roughly a 1% increase in sales to break even, adjusted by margin. For example, if a business typically earns a 20% profit margin, absorbing a 5% BNPL fee drops that margin to 15%. To recover, sales would need to increase by about 25–30%.

This simple math highlights why BNPL is most attractive for higher-margin merchants or those confident in achieving significant sales growth. For businesses operating with thin margins, such as those with 10-15% margins, moderate BNPL fees can quickly outweigh the gains. That’s why retailers need to measure incremental profit rather than just top-line revenue. A key question is whether BNPL sales represent truly new purchases, such as first-time customers or upsells, or simply a shift in how existing buyers choose to pay.

Additional hidden costs can further erode returns. BNPL transactions often have higher return rates, which add to restocking and operational expenses. Fraud-related chargebacks can also increase, along with potential reputational risks if disputes become frequent.

Another challenge is that merchants may end up subsidizing shoppers who would have paid with lower-cost methods, reducing overall margins without expanding the customer base. If these costs are not offset by genuine sales growth, BNPL can put pressure on margins to the point where retailers may feel compelled to adjust pricing across the board.

Merchants who thrive with BNPL use it strategically:

• Focus on incremental sales: Deploy BNPL for products or customer segments where it clearly expands the market (e.g. new customers, big-ticket items). If BNPL only cannibalizes existing sales (cash shoppers switching to installments), the net gain is small or negative. Use promotions or targeted offers to attract new spenders via BNPL.
• Manage returns tightly: Since BNPL orders return more often, tighten product descriptions and sizing charts to reduce “no-fit” returns. Consider curbing easy returns policies for BNPL sales (for example, require partial payment completion before refunds) to discourage abuse.
• Monitor customer lifetime value (LTV): Track whether BNPL buyers return as repeat customers. If most BNPL users make only a single purchase and then vanish, the long-term benefit is limited. Ideally, BNPL should help build loyalty; if it merely triggers one-off impulse buys, profitability may suffer.
• Negotiate fees: As BNPL adoption grows, competition among providers may drive down fees. Early evidence suggests some platforms are adjusting rates to win merchant business. Established merchants with high volumes can sometimes negotiate better terms or lower costs for specific categories.

Conclusion

BNPL has quickly gained traction in the financial mainstream, with more than half of US consumers now utilizing it. For merchants, the appeal lies in higher sales and larger order values, particularly among younger, digitally inclined shoppers who often prefer installment plans over credit cards. On average, retailers offering BNPL see sales rise by about 20% and enjoy strong conversion lifts, making it a powerful tool for growth and customer acquisition.

The trade-offs are significant, though. BNPL carries higher processing fees than cards, increases return rates, and introduces new dispute challenges. Merchants with slim margins risk losing profitability if the incremental gains don’t outweigh these costs. Consumers, meanwhile, gain short-term flexibility but face risks from missed payments and tighter regulatory oversight as BNPL borrowing is increasingly tracked.

For investors and policymakers, the model sits at a crossroads. Growth remains strong, but margins may tighten under competition and regulation. The future of BNPL depends on striking a balance between its clear sales upside and its financial and operational risks, making careful tracking of returns, customer retention, and fee impact essential.