Payments glossary · Methods
Buy Now, Pay Later (BNPL)
Buy now, pay later (BNPL) is short-term credit offered at checkout that lets a customer split a purchase into instalments or pay later, often interest-free. The BNPL provider usually pays the merchant upfront, minus a fee, and collects repayments from the customer.
How Buy Now, Pay Later works
At checkout the customer chooses the BNPL option and the provider runs its own eligibility and credit checks. If the customer is approved, the provider pays the merchant and collects instalments from the customer. Common formats include pay in three or four instalments over a few weeks, pay in 30 days, and longer financing plans that may carry interest. Well-known examples include Klarna, Afterpay (Clearpay in the UK) and Affirm.
Merchants use BNPL to increase conversion and order values, particularly in fashion, electronics and homeware. The trade-offs are cost, as merchant fees are typically higher than for card payments, and control, as the provider decides who is approved. Because the provider carries the credit risk, the merchant is generally not exposed to missed repayments, but returns and refunds still have to be processed through the provider.
Regulation is tightening. In the UK, the FCA began regulating deferred payment credit on 15 July 2026: third-party lenders offering interest-free credit repayable in 12 or fewer instalments within 12 months now need FCA authorisation or temporary permission. In the EU, the revised Consumer Credit Directive (EU) 2023/2225 brings most BNPL arrangements into scope from 20 November 2026, removing earlier exemptions for small, short-term and interest-free credit.