The Buy Now, Pay Later Model: How It Works & Whom It Benefits

Pay Later Model


The “buy now, pay later” concept (BNPL) isn’t new to businesses. Throughout the years, smaller merchants have offered this option to loyal customers in an effort to give them more access to products without paying for the full amount upfront.

Now this model is being re-introduced to the market and gaining a lot of popularity.

What Is Buy Now, Pay Later and How Does It Work?

“Buy now, pay later” is a type of loan that allows a customer to pay for a purchase in multiple equal payments by a set date; it’s usually billed to their credit or debit card. The first payment is made at checkout.

if you want to offer this option to your consumers, high-risk merchant accounts are necessary to ensure that this payment processing model can be introduced seamlessly into your system. Depending on the provider, this option could come with interest rates and late fees to protect the merchant and ensure that the product will be paid in full and on time.

Pay In 4 Model

In most cases, the business will follow the “Pay in 4” model, which divides the total amount into four equal installments that are due two weeks apart.

For instance, if a consumer buys a $1,000 product, they would pay $250 at checkout, $250 in two weeks, and so on until all 4 payments are completed. Most merchants that offer the “Pay in 4” model will not charge interest rates, but late fees of at least $7 will be charged for payments that are not made in time.

Other BNPL Options

There are also instances when a company will require a consumer to make a small down payment, such as 20% of the total price, at checkout and then divide the remaining balance in a series of installment payments with no interest fees.

Payments can be made with cash, bank transfer, credit, or debit card. Customers will also have the option to set up automatic payments to ensure they don’t incur late fees.

BNPL vs. Credit Card Purchases

“Buy now, pay later” is different than using a credit card to purchase a product because the payment installments are set from the very beginning and there’s no interest so long as those payments are made on time. When using a credit card, on the other hand, a consumer is only required to make a minimum payment every month but is charged interest every subsequent month if the balance is not fully paid. Not only could it take longer to pay off, but a person could wind up paying more for the product than the original purchase price.

Benefits of the Buy Now, Pay Later Model

The “buy now, pay later” model is beneficial for businesses since it offers a new option to consumers to purchase products they won’t normally have enough money to pay in full at one time.

While there are limits to what and how much consumers can purchase using the buy now, lay later option, it encourages more purchases because customers are more confident in being able to pay for things over time.

Talk to your merchant account provider about “buy now, pay later” options for your business as well as the BNPL apps customers are using.

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