Buy Now, Pay Later (BNPL) has become a mainstream payment method for online shopping. In just a few years, annual global BNPL transactions have surged dramatically – one analysis reports growth from about $2.3 billion in 2014 to $342 billion by 2024. By 2024, BNPL options were expected to account for roughly 5% of all e-commerce spending worldwide. Millions of consumers now use BNPL at checkout – for example, an industry forecast projected nearly 93 million BNPL users globally by 2024. In the United States, about 14% of adults reported using a BNPL service in the past year (up from 10% in 2021).

Major providers (Klarna, Affirm, Afterpay, etc.) each operate on a colossal scale – for instance, Klarna alone claims a network of over 600,000 merchant partners worldwide. This rapid adoption demonstrates that BNPL has evolved from a niche fintech offering into a standard payment option at checkout.

Key Takeaways

• Explosive transaction growth: E-commerce BNPL volume has roughly doubled each year during the pandemic years. By 2024, BNPL was used for a sizable share of online orders.
• Millions of users: Tens of millions of consumers worldwide use BNPL now – in the U.S., an estimated 14% of adults used it in 2023 (versus only 10% in 2021).
• Thousands of merchants: Major BNPL services each partner with hundreds of thousands of merchants (e.g., Klarna ~600,000, Affirm ~358,000, Afterpay ~348,000). New banks and card networks are rapidly joining this channel.
• Broader payment landscape: By 2025, most large retailers will likely offer BNPL or equivalent financing (via Klarna, Afterpay, PayPal Pay-in-4, etc.), and even small merchants can plug in finance options through aggregators or payment providers.

BNPL’s Continued Rise (and Transformation)

BNPL continues to expand, especially in e-commerce. Global BNPL volume is projected to grow steadily – one market analysis estimates the global BNPL market will reach $560 billion in 2025 (up ~13.7% from 2024). In 2024, BNPL accounted for a substantial share of online shopping; an industry report predicted that BNPL transactions would total $680 billion of global e-commerce by the mid-2020s. In Europe, BNPL already makes up about 9% of online purchases (≈€90 billion annually). U.S. BNPL usage is also climbing – nearly one in seven U.S. adults used BNPL in 2023, and survey data show usage rising each year. These trends indicate BNPL is no longer a fad but a sustained payment channel.

Major BNPL providers reach hundreds of thousands of merchants. For example, Klarna’s merchant network exceeds 600,000 retailers worldwide.

The BNPL sector is diversifying too. Traditional banks and credit-card companies have begun offering installment payment plans. For example, some large U.S. banks have launched their own BNPL-style products (one major bank’s program even has a special brand name). Fintech platforms are emerging to enable any bank or credit card issuer to tap into the BNPL market. New API-based services allow banks to present in-checkout installment offers, just like fintech BNPL players. Even payment networks are getting involved – both Visa and Mastercard now support “installment” products that merchants can offer at checkout (effectively turning any credit card into a pay-later plan).

BNPL was first popular for online retail, such as fashion and electronics, but it is now spreading into virtually every selling channel. Major online and brick‑and‑mortar retailers now routinely offer BNPL options at checkout. In-store solutions utilize features like QR codes or linked cards, allowing shoppers to split in-store purchases into installments. Travel companies, home furnishing stores, health and wellness services, and even grocery and food delivery companies are testing BNPL or installment offers. (For example, BNPL arrangements are common at companies selling higher-priced items or enabling vacations.)

This broad industry uptake – from apparel to appliances to travel – means that in 2025, more merchants will be expected to support pay-later financing to stay competitive.

Benefits of Offering BNPL to Customers

When merchants offer BNPL, they tend to see higher sales and larger orders. By giving shoppers the option to split payments, businesses can turn tentative interest into completed sales. Studies consistently show that retailers accepting BNPL experience meaningful increases in conversion rates and average order values (AOV).

In practical terms, customers tend to buy more – adding extra items or higher-end products – once they can pay over time.

Some key advantages of BNPL for merchants include:

• Higher conversion rates:

Customers are more likely to complete their purchase if they can postpone payment. Research shows BNPL at checkout can reduce cart abandonment and boost conversions. Giving consumers an installment option often makes shoppers more likely to complete their purchases.

• Increased order size:

Shoppers tend to spend more per order. With payments split, buyers often add extra items to the cart. Multiple sources find AOV gains in the tens of percent. For instance, Amazon’s merchant services found offering BNPL can increase basket size by 20–25%. Even outside that region, providers report similar uplifts (in some cases doubling AOV) when financing is available.

• New customers and loyalty:

BNPL attracts younger and credit‑averse consumers who might otherwise abandon the sale. Merchants often note that flexible payment options foster goodwill, as buyers appreciate the convenience and may return in the future. BNPL attracts consumers who might otherwise have hesitated and can drive repeat business.

• Immediate payment to merchant:

Importantly, merchants receive the full purchase price (minus fees) immediately from the BNPL provider, rather than being spread out over months. This means merchants get a cash flow boost: they don’t have to wait for consumer payments, and there’s no need to chase installments. The merchant receives payment upfront, and the financing firm assumes the responsibility of collecting from the customer, which many retailers cite as a significant benefit.

Industries Benefiting from BNPL

Specific sectors see robust gains from offering installment payments. High-ticket retail – including electronics, furniture, home goods, and sports equipment – benefits from customers being able to afford expensive items by spreading payments. Fashion and beauty also heavily adopt BNPL, as even modest clothing orders can grow when paid in installments.

Non-retail industries, such as travel and leisure, are also expanding their use of BNPL (many airlines and booking sites now partner with BNPL firms). Even healthcare, home services, and educational courses are beginning to offer pay‑later plans to reduce sticker shock for patients or students.

Managing BNPL Risks and Costs

While BNPL offers clear upsides, merchants must carefully manage its trade-offs. Key concerns include the fees paid to providers, impacts on profit margins and cash flow, and potential changes in returns or fraud. Regulators are also tightening rules around BNPL, which merchants should monitor.

1. Provider Fees and Margins

BNPL platforms charge merchants a fee for each transaction, typically ranging from 2% to 8% of the sale amount. This is generally higher than standard credit-card processing fees (around 1–3%). These fees reduce the merchant’s profit margin, so retailers must weigh the increased sales volume against the higher costs.

In low-margin industries, high BNPL fees can be a serious expense. Some BNPL plans with longer terms or interest may also split any finance charges with the merchant. However, many pay‑later services negotiate flat “merchant discount rates” (often advertised as “0% financing to the buyer” but a fee for the seller). Merchants should shop around among BNPL partners, as fees vary by provider, volume, and plan length.

2. Cash Flow and Funding

On the positive side, BNPL providers typically pay merchants promptly and in full (minus fees), thereby improving their cash flow. However, merchants should read the fine print: some arrangements reserve a portion of the funds (an “reserve”) to cover potential returns or chargebacks. If many purchases are returned or disputed, the merchant’s actual cash inflow could be delayed or reduced.

In practice, major BNPL firms pledge to fund merchants up front, which most retailers find attractive. Still, merchants must understand any delay terms in their agreements – for example, if payment is only released after shipping confirmation or a waiting period.

3. Returns, Refunds, and Invoicing

Accepting BNPL tends to increase return rates. Because customers face no immediate out-of-pocket cost, they may be more willing to buy multiple items and then return the unwanted ones. Returns can cost the merchant up to two-thirds of the item price to process, so higher return rates significantly eat into margins.

Furthermore, BNPL introduces complexity in refunds. By industry rule, the BNPL provider handles the customer’s refund process (primarily if regulations soon treat BNPL like a credit card). Still, the merchant ultimately reimburses the provider for the returned order. In some jurisdictions, new rules even require the lender to refund the consumer immediately upon return, before the merchant has physically received the item back.

This means a merchant might lose both the product and the sale if returns are abused. For instance, analysts warn that BNPL can encourage “bracketing” fraud (ordering multiple sizes/colors and returning all but one), with merchants bearing the cost. Retailers report having to repay BNPL firms via monthly invoices for any refunds or disputes.

4. Fraud and Abuse

First-party fraud (stolen cards, fake identities) is generally covered by BNPL companies, but merchants are still exposed to specific schemes. Because BNPL shifts payment liability to the lending platform, some fraudsters exploit new loopholes. For example, criminals might attempt transaction “triangulation” or make fake BNPL accounts. More commonly, “friendly fraud” rises: customers claim non-delivery or ask to cancel payments after receiving goods.

BNPL customers often have multiple accounts, so a payment dispute with one provider can coincide with returns of goods purchased through another. Merchants should implement strong fraud detection at checkout even when BNPL is chosen. They should also monitor suspiciously frequent returns or cancellations on BNPL orders.

5. Operations and Customer Service

Since payments are not processed like regular card sales, merchants must coordinate closely with BNPL partners. Customer service teams need to be trained: queries about delayed BNPL payments or questions about installment plans sometimes come back to the merchant.

Additionally, multi-platform reconciliation can become complicated if customers receive partial refunds. Some merchants have reported customer confusion (e.g., not understanding why they still owe on a BNPL loan for a returned item). Clear communication at the time of purchase and on receipts is essential.

6. Regulatory Compliance

The BNPL landscape is attracting new regulation aimed at consumer protection, which affects merchants. In the UK and EU, regulators are moving to treat BNPL loans like other credit products. For example, the forthcoming EU Consumer Credit Directive classifies all BNPL plans under credit law – meaning providers will need to conduct affordability checks and cap fees by late 2026.

In the UK, the Financial Conduct Authority (FCA) has indicated that BNPL will fall under its regulatory framework by 2026, requiring more transparent disclosure and stricter lending controls. This means merchants must ensure BNPL offers on their sites are accompanied by the mandated disclosures (just like credit offers) and cannot encourage customers to overextend themselves. In the US, regulators are also stepping in: a 2024 CFPB rule interpretation treats BNPL firms as credit card issuers for dispute purposes.

As a result, if a customer returns a product purchased with BNPL, the lender must credit the customer, and the merchant will be required to refund the lender. US states are enacting similar rules (e.g., New York’s BNPL Act requires lenders to disclose terms and handle refunds starting 2025). Merchants should prepare for these changes. This means clearly describing BNPL terms (fees, payment schedule) at checkout, avoiding aggressive promotion of BNPL, and coordinating with providers to comply with new refund rules.

Trade associations caution that merchants “promoting BNPL” are responsible for not misleading consumers. Any deceptive marketing or failure to alert shoppers to the credit nature of BNPL could draw regulatory scrutiny. In practice, reputable merchants will work with their BNPL partners to update checkout flows and terms of service by 2025, ensuring affordability and disclosure requirements are met.

Conclusion

Offering Buy Now, Pay Later in 2025 can be a powerful growth driver for merchants – boosting sales, conversions, and average order size. However, it entails higher payment fees, increased complexity surrounding returns and fraud, and evolving compliance obligations.

Savvy retailers will weigh these factors – structuring their BNPL program to maximize the upside (new customers and larger carts) while managing the costs (fees, refunds) and staying on top of consumer protection rules. Done thoughtfully, BNPL can be a competitive tool – done carelessly, it can squeeze profits and invite risk.