Finance Fintech.

What is Buy Now, Pay Later (BNPL) and how does it work?

What is the revenue model for BNPL providers?

The growth of BNPL has been dramatic in recent years. The BNPL provider represents the primary interface between the merchants and the customers for both eCommerce and POS (Point of Sale).

The diagram below shows how the process works:

Step 0. Bob registers with AfterPay. An approved credit/debit card is linked to this account.

Step 1. The “Buy Now, Pay Later” payment option is chosen by Bob when he wants to purchase a $100 product.

Steps 2-3. Bob’s credit score is checked by the BNPL provider, and the transaction is approved.

Steps 4-5. A BNPL provider grants Bob a $100 consumer loan, which is usually financed by a bank. A total of $96 out of $100 is paid to the merchant immediately (yes, the merchant receives less with BNPL than with credit cards!) Bob must now pay the BNPL provider according to the payment schedule.

Step 6-8. Bob now pays the $25 down payment to BNPL. Stripe processes the payment transaction. It is then forwarded to the card network by Stripe. The card network must be paid an interchange fee since this goes through them as well.

Step 9. Bob can now receive the product since it has been released.

Steps 10-11. The BNPL provider receives installment payments from Bob every two weeks. Payment gateways process installments by deducting them from credit/debit cards.

Over to you: What is your experience with BNPL? Who were the providers you used?

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