The "Buy Now, Pay Later" (BNPL) model typically involves three main participants:
- The customer,
- The e-commerce store owner, and
- The intermediary or service provider.
Under this model, customers can purchase products without any upfront markup, and repay the cost in equal installments. No formal credit agreement is needed. Meanwhile, the service provider promptly transfers the entire purchase amount to the retailer on the following day, minus their own commission.
The BNPL payment method generally follows a four-step procedure:
- Product selection,
- Order placement, choosing the "BNPL" payment option,
- Making an initial down payment, and
- Completing the remaining payments in equal installments over a specified period (typically, up to 4 months).
Here's a typical scenario when leveraging this payment model:
1. When a customer is finalizing an online order, they'll encounter a BNPL payment offer from the service provider.
2. Opting for this method requires the customer to fill out a short application. This usually asks for their full name, contact information, banking details, and possibly some additional data. Using this information, the BNPL provider swiftly assesses the customer's creditworthiness. Approvals or denials from the service are almost immediate, ensuring a smooth shopping experience.
3. Once approved, the customer will be presented with a payment plan, often spread across four equal installments. This might entail monthly payments or bi-weekly installments, with an immediate first payment. For instance, for a $100 purchase, they'd pay $20 upfront, followed by four additional $20 payments. These installments don't carry interest, and subsequent payments are usually automated, debiting the customer's specified card.
Retailers offering BNPL services pay a commission to these providers. Generally, the BNPL provider retains a small percentage of each transaction and transfers the rest to the retailer. While retailers might lose a minor amount on each sale due to this commission, the likelihood of increased sales volume can compensate. This is because offering BNPL often empowers customers to make larger purchases than they might have been able to afford using other payment methods.