If you run an ecommerce shop for your crafting business, or even if you just do a lot of online shopping, you’ve probably encountered a Buy Now Pay Later service. Buy Now Pay Later (or BNPL) apps have become increasingly popular recently, and major players like Shopify and Etsy have begun to integrate them into their services.

But what exactly is a Buy Now Pay Later app, and what are the benefits and risks to using one for your business? Let’s look at some common questions about BNPL services, as well as provide an overview of the features of the most popular apps. 

What is Buy Now Pay Later? 

Put simply, Buy Now Pay Later is a one-time loan that offers buyers the chance to make a large purchase without the additional hassles and expenses of a credit card. You’ll need to answer some basic personal information and have a soft credit check completed in order to start a BNPL loan, but it won’t affect your credit score like opening a new credit card would.

Although each app works a little differently, most enable buyers to defer payment or split a large purchase up into smaller amounts without having to pay additional interest or fees (as long as buyers pay on time.) For example, a $1000 purchase might be broken up into four installments, with $250 due at purchase and an additional $250 due every two weeks for the next six weeks.

Rather than charging buyers interest, BNPL takes a transaction fee and a percentage of the sale from the seller. This makes BNPL an attractive option for shoppers who don’t have credit cards, or who want to make a large purchase they wouldn’t be able to pay off within a month without interest.

What happens if a buyer doesn’t pay?

Depending on the app, buyers could face late fees, interest, or even retroactive interest (starting from the date of the loan) for late payments. Buyers may also be barred from using a particular BNPL app in the future if they fail to make payments. 

What risks and benefits are there for the seller?

Buy Now Pay Later apps are responsible for collecting payments. As a seller, you’ll still be paid immediately in full, minus the transaction and percentage fees collected by the app. (These usually range from 2% to 8%). The benefit to offering BNPL is that it may convince a customer to spend more or purchase higher price point items, knowing they will be able to spread that cost out over a longer period of time.

Popular Buy Now Pay Later Apps

Klarna

Klarna is one of the most recognizable Buy Now Pay Later apps, used by large companies like Macy’s, Sephora, and Etsy. Klarna offers several BNPL options for buyers: 

• Four interest-free payments: Buyers pay 25% of the total due at purchase, with the rest automatically deducted from a credit or debit account every two weeks. This enables buyers to spread a large purchase out over several weeks.
• 30 days to purchase: Buyers place an order, then payment is deducted in full thirty days after purchase. This “try before you buy” option enables customers to make sure they love a purchase before committing to it. 
• Klarna Financing: Customers choose from multiple monthly payment options, which may or may not include interest.

Klarna doesn’t disclose the exact fees charged to merchants–you’ll need to contact them directly with more information about your business to receive a quote. However, websites like Finty report that Klarna takes a $0.30 per transaction fee as well as a variable percentage of the sale, up to 5.99%. 

Klarna integrates with Shopify or WooCommerce, as well as several other ecommerce apps. 

Shop Pay Installments by Shopify (via Affirm)

Shopify has partnered with Buy Now Pay Later app Affirm to offer Shop Pay Installments, a BNPL option that integrates easily into your existing Shopify storefront. Shop Pay Installments enables you to offer your customers two BNPL services:

• Four interest-free payments: Like Klarna, Shop Pay Installments offers four payments every two weeks. As long as the customer pays on time, there’s no interest or fees.
• Monthly payments: Shoppers can spread their payments out over up to 12 months. Depending on the shopper, the price, and the length of the loan, they may incur interest payments.

Like Klarna, you’ll need to connect with Affirm/Shop Pay Installments for an exact quote on their fees to use the service. However, Shopify staff have confirmed it is usually a fee of 5-6%, plus a $0.30 transaction fee. 

If you already use Shopify for ecommerce, Shop Pay Installments is an easy BNPL option to offer your customers.

PayPal Pay in 4 and Pay Monthly

If you take payments via PayPal, there are two BNPL options you can offer your customers:

• Pay in 4: Splits payments into four installments, with the first due immediately and the remaining billed every two weeks with no interest. Can only be used on purchases up to $1,500.
• Pay Monthly: A relatively newer offering, Pay Monthly offers shoppers six to 24 months to pay off their purchases. Interest may be charged. Unlike Pay in 4, Pay Monthly can be used on purchases up to $10,000.

Because merchants already pay a per-transaction fee when receiving money via PayPal, there is no additional fee to offer Pay in 4 or Pay Monthly options. 

Afterpay

Unlike the other Buy Now Pay Later apps detailed in this article, Afterpay only offers one BNPL option: Four interest-free payments over six weeks. Like the other apps, Afterpay doesn’t disclose its exact merchant fee, but others have reported it is between 4 and 6%, as well as a $0.30 transaction fee.

Afterpay integrates with Shopify, WooCommerce, Stripe, Squarespace, and more.

Buy Now Pay Later apps are an increasingly popular option for ecommerce merchants. While you will pay a transaction fee, it may be worth it when you consider the potential increase in sales that may result from offering a BNPL option to your customers.