BNPL: the payment trend that is transforming the retail industry

Written by
Antonio Campos

BNPL. If you have made a purchase at a retailer in the last 12 months, you will surely have come across these acronyms: Buy Now Pay Later (BNPL) is an installment payment method offered directly to the consumer at point-of-sale, both online and in-store.

As consumers are changing their shopping habits in the retail market - where speed and financing are a priority - the adoption of this model is expected to grow to capture 20% of e-commerce in Latin America, according to Americas Market Intelligence (AMI).

AMI also estimates that the main audience for this type of service is the 169 million people who have a debit card, but not a credit one. Millennials and Gen Z (people born between 1990 and 2000, approximately) are the segment of the population that has adopted this service the most.

This can be attributed to the fact that the BNPL model allows them to make purchases beyond their ability to pay, without committing a disproportionate amount of their income. While, at the same time, building a positive credit history.

Faced with this scenario, more and more retail companies value the possibility of offering this payment format to their customers.

That is why in this post we gather an explanation of how BNPL works, the advantages it could offer to strengthen retailers' offerings, as well as some recommendations when implementing it.


How does BNPL work?

Here's how: buy now, pay later.

That is one of the great advantages of BNPL, which works just as its name suggests, making it quite transparent for the consumer. In addition to its coherent branding, this payment model has a long history in the economy.

Despite the fact that its appearance under this new name is recent, paying for a good or service in multiple payments is almost as old as banks. In that sense, credit cards would be more novel.

However, the wisdom behind this resurgence in which many finance and technology companies have shown interest is that they have replaced the bureaucracy of traditional bank lending with a convenient and friendly digital onboarding process.

Now, on the other side of this equation, let's say a retail company is interested in offering its customers the ability to make purchases under this financing model.

What would it need to accomplish this? The process varies depending on the service provider, but the general scheme doesn't change much.

Whether online or in a physical store, the customer will be asked to open a user account, where they will enter some personal information (name, address, official ID), and financial information (income or if they have been subject to credit in the past). After processing the data, the supplier will issue a response within minutes.

Once the purchase is approved, the customer can decide whether to cover the first payment on the spot or wait for the payment deadline to arrive.


Although it is not as fast as a traditional check-out, it is considerably faster than applying for a credit card. In addition, as we have already mentioned, it offers an alternative for those who currently do not have access to any other form of financing.

Now that we know how it works, let's see what benefits this payment model can offer retail companies.

Why offer BNPL in retail?

We mentioned that the target audience for the BNPL service are Millennials and Gen Z (aged between 18 and 34). However, when analyzing the data further, we find that the reasons that motivate them to make purchases with this form of payment are more varied than they appear to be:


Therefore, retailers are showing greater interest in enabling this type of offer for their customers, especially in the retail market, which has been migrating its offer to e-commerce for at least five years.

The main value proposition of BNPL in this sense is that it increases the average spend per order (or AOV), as well as the purchase rate, both key metrics for revenue growth.

Furthermore, from an operational point of view, the technology that underpins the BNPL check-out process can be incorporated into most e-commerce hosts via APIs, so the development investment is not high.

So far we have discussed why BNPL makes sense as an online payment method, but there is a powerful reason to incentivize retailers to opt to include it in their branches as well, as well as B2B companies.

Enhances brand experience

Making an online payment with BNPL encourages consumers to shop more frequently and with larger carts. But when this offer is transferred to physical stores, consumers may perceive it as an addition to the value proposition provided by the brand.

This contributes to the new generations' interest in increasing their consumption in physical stores. According to a study by Llorente y Cuenca, the return to a normal life boosted store preferences, due in part to the added value of being able to touch and try products before purchasing them.

In this sense, developing a shopping experience around the BNPL in a face-to-face format can strengthen consumer loyalty.

Finally, we have some recommendations to consider when implementing BNPL in your business.

Advice: proceed with caution

If so far everything seems to indicate that BNPL's advantages are too many to be true, it is important to consider what is happening in the market.

At the time of writing this post, two of the major players in the environment announced a massive drop in valuations. First was Affirm, which posted a 97% drop in share value from its all-time high; it was followed by Klarna, whose valuation fell 85% from the $45.6 billion USD of its last round.

Some analysts see this as an indication that BNPL was a fad.

However, what seems to be happening is atomization of supply, especially in the face of the entry of competitors such as Apple or PayPal, as well as the growth in interest rates and in the percentage of defaults.

Depending on how the market develops in the future, this could mean an advantage for businesses interested in offering the service. It is then that the attitude that consumers adopt with respect to their shopping experience with BNPL becomes relevant, as it seems logical that, fashion or not, their expectations have changed.