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The Changing Landscape of Retail Credit: Buy Now Pay Later Schemes

Written by: Gargi Sarma 

The way we shop and manage our finances is undergoing a digital revolution. One of the most significant trends transforming the retail credit landscape is the rise of Buy Now, Pay Later (BNPL) schemes. These innovative financing options are rapidly changing consumer behavior and posing both opportunities and challenges for retailers.

Data Insights Highlighting the Growth of BNPL:

Figure 1: Buy Now Pay Later Market Size, 2020 - 2032 (USD Billion)

  • Global Market Boom: The buy now, pay later market is projected to exceed US$ 3,268.26 billion by 2030, up from US$ 179.5 billion in 2022, with a robust compound annual growth rate (CAGR) of 43.8% during the forecast period from 2022 to 2030 (Source: Precedence Research).

  • Millennial and Gen Z Affinity: BNPL has become a preferred payment method, particularly among millennials and Gen Z. Studies suggest that BNPL users tend to spend 30-50% more per transaction compared to traditional methods (Source: Retail Alliance, Buy Now, Pay Later (BNPL)).

  • E-commerce Penetration: While BNPL initially gained traction online, it's rapidly expanding into physical stores, offering a convenient alternative to credit cards at checkout (Source: Economic Times - BFSI).

Emergence and Popularity of BNPL:

Figure 2: Digital Payments Adoption by Category

BNPL services have gained traction due to their simplicity and appeal to consumers, especially among younger demographics. Companies like Afterpay, Klarna, and Affirm have led the charge, offering user-friendly platforms that integrate seamlessly with online and in-store shopping experiences.

For instance, Klarna's partnership with major retailers like H&M and Sephora has enabled millions of consumers to split their payments into manageable installments. Similarly, Afterpay, available at retailers like Urban Outfitters and Anthropologie, has reported rapid growth, attributing much of its success to its straightforward, fee-free installment plans.

Technological Innovations Driving BNPL:

Technological advancements have been pivotal in the proliferation of BNPL schemes. Key innovations include:

Advanced Algorithms and AI:

  • BNPL providers leverage artificial intelligence and machine learning to assess credit risk quickly and accurately. This allows for instant credit decisions, enhancing the customer experience.

  • For example, Affirm uses sophisticated algorithms to evaluate a shopper’s ability to repay by analyzing multiple data points beyond traditional credit scores.

Mobile Integration:

  • BNPL services are often integrated into mobile apps, providing a seamless shopping experience. Consumers can easily select BNPL options at checkout through their smartphones.

  • Afterpay's app not only facilitates purchases but also offers features like budgeting tools and spending limits, empowering consumers to manage their finances better.

Enhanced Security Measures:

  • With the increase in online transactions, security is paramount. BNPL providers utilize encryption and tokenization to protect consumer data, building trust and encouraging adoption.

  • Klarna, for instance, employs multiple layers of security, including biometric authentication and real-time fraud detection.

Impact on Retailers:

The adoption of BNPL schemes has significantly impacted retailers, offering both opportunities and challenges.

Figure 3: Global BNPL Usage According to Category (2023)


Increased Sales and Average Order Value (AOV):

  • BNPL services have been shown to boost sales by allowing customers to purchase items they might not otherwise afford upfront. Retailers report higher conversion rates and increased AOV.

  • For example, ASOS, an online fashion retailer, saw a notable increase in sales after integrating Klarna’s BNPL option, with customers often purchasing more items per transaction.

Attracting New Customers:

  • BNPL schemes are particularly popular among Millennials and Gen Z, demographics that prioritize flexibility and budgeting. Retailers offering BNPL options can attract and retain these younger shoppers.

  • Urban Outfitters, by partnering with Afterpay, has successfully tapped into this demographic, enhancing customer acquisition and loyalty.

Enhanced Customer Experience:

  • Offering BNPL options can enhance the overall shopping experience, making it more convenient and financially manageable for customers. This can lead to higher customer satisfaction and repeat business.

  • Sephora’s partnership with Klarna allows beauty enthusiasts to buy high-end products without the immediate financial burden, improving their shopping experience.

Figure 4: Share of U.S. BNPL Users Who Used the Following BNPL Service Providers in the Past 12 Months 


Managing Returns and Refunds:

  • Handling returns and refunds can be more complex with BNPL transactions. Retailers must ensure seamless processes to maintain customer satisfaction and operational efficiency.

  • Addressing this, BNPL providers like Affirm offer integrated return management solutions, helping retailers streamline these processes.

Potential for Increased Defaults:

  • While BNPL providers assume much of the credit risk, there is still a potential impact on retailers if customers default on payments. Retailers need to work closely with BNPL partners to mitigate these risks.

  • Advanced risk assessment technologies and responsi

Regulatory and Compliance Issues:

  • As BNPL schemes grow, they attract more regulatory scrutiny. Retailers must stay informed about evolving regulations to ensure compliance and avoid potential legal issues.

  • Countries like Australia and the UK have already begun implementing stricter regulations on BNPL services, affecting how retailers operate.

Figure 5: Almost Half of Gen Z are Expected to Use BNPL by 2025 

Future Outlook:

The future of BNPL in retail looks promising, with several trends and developments on the horizon:

Integration with More Industries:

  • While BNPL is currently popular in fashion and electronics, its use is expanding into new sectors like travel, healthcare, and home improvement. This broader adoption will further revolutionize retail credit.

  • Companies like Affirm are already partnering with travel agencies and healthcare providers, offering installment options for a wider range of services.

Increased Competition and Innovation:

  • The growing popularity of BNPL is attracting new players, leading to increased competition and innovation. Retailers can expect more flexible payment options and improved customer experiences.

  • Emerging players like Zip and Sezzle are introducing unique features, such as rewards programs and flexible payment schedules, pushing established providers to innovate continuously.

Enhanced Data Utilization:

  • Retailers and BNPL providers will increasingly leverage data analytics to understand consumer behavior better, personalize offers, and optimize payment solutions.

  • Predictive analytics and AI-driven insights will help retailers anticipate trends, manage inventory, and tailor marketing strategies.

Traditionally, retailers focused on determining the optimal upfront price that consumers were willing to pay. However, with BNPL, the analysis extends beyond immediate pricing. Retailers now need to consider how much consumers are willing to pay at a later date. This shift in perspective opens up new opportunities for personalized pricing based on demographics and risk assessment. Enter RapidPricer, a technology solution that combines data-driven insights with market understanding. RapidPricer helps retailers optimize pricing strategies, analyze competitor pricing, manage categories effectively, and even leverage psychological pricing. By integrating science (data analytics) and intuition (market insights), retailers can strike the right balance and revolutionize their pricing game.


Buy Now, Pay Later schemes are transforming the retail credit landscape, offering substantial benefits to both consumers and retailers. By providing flexible payment options, BNPL enhances customer experiences, boosts sales, and attracts new demographics. However, retailers must navigate challenges like managing returns, mitigating default risks, and staying compliant with regulations. As technology advances and competition intensifies, the BNPL sector will continue to evolve, further shaping the future of retail. Embracing these changes and leveraging new technologies will be key for retailers looking to thrive in this dynamic environment.

About RapidPricer

RapidPricer helps automate pricing and promotions for retailers. The company has capabilities in retail pricing, artificial intelligence, and deep learning to compute merchandising actions for real-time execution in a retail environment.

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