What is Buy Now, Pay Later? Guide for Shopify Merchants

The world of ecommerce moves fast, and shoppers' expectations move even faster. Today's online buyers aren't just looking for great products—they want flexibility in how they pay for them. Buy now, pay later solutions have exploded onto the scene, completely reshaping how consumers approach online purchases and opening exciting new doors for Shopify merchants looking to boost sales and delight customers. Ready to dive into the BNPL revolution? Let's break down everything you need to know about bringing these flexible payment options to your store.

Understanding Buy Now, Pay Later (BNPL) for Ecommerce

What is Buy Now, Pay Later?

Buy now, pay later does exactly what it says on the tin—it's a financing option letting customers snag their must-have items today while spreading payments over time. Unlike traditional credit cards with their often confusing terms, many BNPL services offer interest-free payments when paid on schedule. No wonder modern shoppers are flocking to stores offering this kind of payment flexibility!

And the numbers don't lie. According to CB Insights, the BNPL market is on track to absolutely skyrocket—growing 10-15x by 2025 and hitting a mind-boggling $1 trillion in annual gross merchandise volume [CB Insights]. That's not just growth—that's a seismic shift in how people shop.

How BNPL Works for Online Shoppers

The beauty of BNPL lies in its simplicity:

1. Shopper fills their cart and heads to checkout

2. They spot the BNPL option among payment options and click it

3. A quick approval happens (we're talking seconds, not days)

4. They make their first payment—typically 25% of the total

5. Products ship immediately—no waiting around

6. The remaining balance gets paid through installment payments (usually biweekly payments or monthly installments)

What makes this particularly appealing? Most BNPL providers only perform a soft credit check that doesn't ding the consumer's credit score—a huge difference from traditional credit alternatives.

Key Differences Between BNPL and Traditional Credit

Benefits of BNPL for Shopify Merchants

Increase Average Order Value

Let's talk about what really matters to your bottom line. Implementing BNPL has been shown to seriously boost average order value (AOV). When customers can spread payments over time, that $200 purchase suddenly feels much more doable. Research from Afterpay, a BNPL solution shows merchants experience an average AOV increase of a whopping 40% when customers use their service [Afterpay Business].

By offering payment plans, you're essentially removing the mental barrier that stops customers from upgrading or adding those complementary items to their cart. Instead of settling for the basic model, they'll spring for the premium version—because now they can.

Reduce Cart Abandonment Rates

Shopping cart abandonment is the eternal headache for Shopify merchants. We've all seen the stats—Baymard Institute puts the average abandonment rate at nearly 70%, with "extra costs" cited as the number one reason shoppers bail at checkout [Baymard Institute].

Adding BNPL options can dramatically slash those abandonment rates. That moment when a customer sees they can break a $200 purchase into four $50 payments without interest? That's when hesitation transforms into action, boosting your checkout conversion rates almost immediately.

Attract New Customer Segments

BNPL services are particularly magnetic for millennial and Gen Z shoppers. A March 2021 survey by The Ascent reported 55.8% overall BNPL usage (up from 37.7% in July 2020), while Gen Z adoption rose to 61.16% in 2021 [The Ascent].

Adding BNPL options to your Shopify store isn't just about convenience—it's about speaking the financial language of these growing customer segments who actively seek out retailers offering flexible payments.

Improve Cash Flow for Your Business

Here's where BNPL truly shines for merchants. Unlike old-school layaway where you'd hold items until final payment, BNPL providers typically pay you upfront for the full purchase amount (minus their service fee). You get the money now, while your customer enjoys the benefits of installment payments.

This payment disbursement model means you maintain healthy cash flow while still giving customers the flexibility they crave—a genuine win-win.

Shop Pay Installments: Shopify's BNPL Solution

Does Shopify have a buy now, pay later option?

Absolutely! Shopify offers its own native BNPL solution called Shop Pay Installments. This integrated option lets Shopify merchants provide flexible payments directly through the Shopify Payments ecosystem—no third-party hoops to jump through.

Shop Pay Installments launched in 2021 as Shopify's official partnership with Affirm. It's seamlessly integrated with the Shop Pay accelerated checkout system, creating a smooth, friction-free experience your customers will love.

Features of Shop Pay Installments

Shop Pay Installments comes packed with merchant-friendly features:

• Four interest-free payments for orders between $50-$1,000

• Fully integrated with Shopify Payments and Shop Pay

• Available for both online checkout and Shopify POS

• Automatic installment reminders via the Shop app

• No impact on customer credit scores

• You receive full payment upfront (minus fees)

These features make Shop Pay Installments a no-brainer for merchants seeking streamlined payment solutions.

How Shop Pay Installments Compares to Other BNPL Providers

While Shop Pay Installments offers fantastic integration benefits, you might be wondering how it stacks up against the competition:

Setting Up BNPL on Your Shopify Store

How do I add pay later in Shopify?

Getting BNPL up and running on your Shopify store is surprisingly straightforward. For Shop Pay Installments, here's the quick rundown:

1. Make sure you're using Shopify Payments as your payment processor

2. Head to Settings → Payments in your Shopify admin

3. In the Shopify Payments section, click "Manage"

4. Scroll down to "Shop Pay Installments" and toggle it on

5. Complete any verification steps if prompted

6. Save your settings

That's it! Once activated, the installment payments option will automatically appear for eligible orders during checkout. No coding required.

Eligibility Requirements for Merchants

Before you dive in, make sure you meet these requirements for Shop Pay Installments:

• Your business must be based in the United States or Canada

• You need Shopify Payments as your payment processor

• Your account needs to be in good standing with Shopify

• You must sell eligible products (most physical products qualify; digital goods may not)

For third-party BNPL providers, eligibility requirements vary. Most require completing an application and meeting certain revenue thresholds—be sure to check their specific criteria.

Integration with Your Online Store and POS

One of the coolest things about modern BNPL solutions is their omnichannel flexibility. For brick-and-mortar retailers using Shopify POS, Shop Pay Installments lets in-person customers spread purchases across four payments using simple QR codes at checkout.

This seamless approach creates consistency in your payment options across all sales channels—whether customers shop online from their couch or visit your physical store.

Customer Experience with BNPL on Your Store

How to qualify for buy now, pay later?

From your customers' perspective, qualifying for BNPL services is typically hassle-free and requires:

• Being at least 18 years old with valid ID

• Having a valid debit card or bank account for automatic payments

• Passing a quick soft credit check (varies by provider)

• For returning customers, having a solid payment history with the BNPL provider

The beauty of most BNPL services is their lightning-fast eligibility checks during checkout—they don't affect the customer's credit score and deliver decisions in seconds. No lengthy forms, no waiting periods.

Payment Options and Timelines

Here's what your customers will experience during the BNPL process:

1. Pay 25% upfront at purchase (the first bite is small)

2. Automatic payments handle the remaining balance on schedule

3. Freedom to pay off the balance early with zero penalties

Most services follow a biweekly payments structure, though some offer monthly installments or other repayment terms. Depending on the provider and purchase amount, customers might spread payments across 6 weeks to 12 months.

Handling Returns and Refunds

Returns with BNPL purchases need careful handling. Here's the typical process:

1. Customer initiates a return through your normal channels

2. You process the return in your Shopify admin

3. The BNPL provider gets notified about the refund

4. They adjust or cancel the customer's remaining payments

5. If payments have already been made, the provider handles refunds according to their policies

Crystal-clear return policies are absolutely essential for BNPL purchases. The last thing you want is confused customers and payment disputes.

Alternative BNPL Providers for Shopify

Does Shopify allow PayPal Pay in 4?

Good news—Shopify absolutely supports PayPal Pay Later, including their popular "Pay in 4" option. This service lets customers split purchases into four interest-free payments over six weeks.

Adding PayPal Pay Later to your Shopify store couldn't be simpler:

1. Make sure PayPal is activated as a payment provider in your Shopify admin

2. That's pretty much it! PayPal's pay over time messaging will automatically appear for eligible customers

3. No extra integration steps needed beyond your standard PayPal setup

Comparing Top BNPL Services (Affirm, Afterpay, Klarna, etc.)

Several major players offer Shopify integrations—each with their own unique flavor:

• Affirm: Offers 3-12 month payment plans with potential interest (0-30% APR), and serves as Shopify's partner for Shop Pay Installments

• Afterpay: Provides interest-free payments in 4 installments over 6 weeks—especially popular with fashion and beauty brands

• Klarna: The Swiss Army knife of BNPL with multiple options: Pay in 4, Pay in 30 days, and extended financing with interest

• Sezzle: Focuses on 4 interest-free payments with an emphasis on helping users build credit history

• Zip (formerly Quadpay): Offers 4 installment payments over 6 weeks with a straightforward flat fee structure

• Splitit: Unique approach that places holds on existing credit cards rather than creating new credit lines

Your perfect match depends on your target audience, typical order values, and whether you sell internationally. Take time to compare fees, customer experience, and market presence before deciding.

Integration Methods for Third-Party BNPL Solutions

Getting third-party BNPL providers connected to your store is typically a breeze:

1. Head to the Shopify App Store and search for your chosen provider

2. Install their official app with a few clicks

3. Complete their merchant application and verification steps

4. Configure how BNPL options display in your store

5. Run some test orders before going live—always test!

For larger merchants or those wanting deeper customization, providers like Afterpay and Klarna offer direct API integrations too.

Promoting BNPL to Drive More Sales

Adding BNPL Messaging to Your Product Pages

Strategic placement of BNPL messaging can transform your product pages into conversion machines. Try these proven approaches:

• Show installment amounts right below product prices (e.g., "or 4 interest-free payments of $25 with Afterpay")

• Add a payment badge or BNPL logo near your add-to-cart button

• Weave payment options into your product descriptions

• Implement a dynamic BNPL widget that calculates installments based on product price

These visual cues help shoppers understand their options before they even reach checkout, planting the seed that makes saying "yes" to your products so much easier.

Marketing Your Payment Options to Customers

Don't keep your flexible payments a secret! Promote them through:

• Targeted email campaigns announcing your new BNPL options

• Social posts explaining how easy installment payments make shopping with you

• A dedicated landing page breaking down all your payment options

• Real customer testimonials showcasing positive experiences with your payment plans

Remember, education is key. Many shoppers don't fully grasp how BNPL differs from traditional credit alternatives—or the benefits it provides them.

Using BNPL in Your Advertising Strategy

Make BNPL a cornerstone of your ad strategy to grab price-conscious shoppers:

• Include installment payments in your Google Shopping feeds

• Highlight payment options in your social media ad copy

• Create specialized retargeting campaigns for cart abandoners that emphasize flexible payments

• Partner with your BNPL provider on joint marketing campaigns

Bonus: Many BNPL providers like Klarna and Afterpay run their own shopping directories that funnel their users directly to participating merchants—essentially becoming an extra customer acquisition channel for your store.

Risks and Considerations for BNPL Implementation

Merchant Fees and Costs

Let's talk brass tacks. BNPL services typically charge merchants 2-8% per transaction—higher than standard credit card processing fees (1.5-3.5%). But don't let that scare you off. These costs need to be evaluated against the very real benefits of higher conversion rates and increased order values.

To calculate your potential ROI, compare:

1. Your current checkout completion rate vs. expected improvement

2. Your current AOV vs. expected increase with BNPL

3. The additional processing costs vs. the incremental revenue you'll gain

Managing Consumer Protection Concerns

The BNPL industry is facing increasing scrutiny from regulatory bodies like the Consumer Financial Protection Bureau (CFPB). Their 2022 report highlighted concerns around inconsistent consumer protections, data collection practices, and potential debt accumulation [CFPB].

To stay ahead of potential issues:

• Keep your terms and conditions crystal clear

• Prominently display all BNPL terms at checkout

• Stay informed about regulatory changes in your markets

• Partner with providers that prioritize consumer protection

Future Trends in BNPL for Ecommerce

The BNPL landscape is evolving at breakneck speed. Keep an eye on these emerging trends:

• Greater credit reporting as providers collaborate with credit bureaus to report payment activity

• Deeper integration between BNPL services and loyalty programs

• Expansion of in-store BNPL options through sophisticated point of sale loans

• Industry consolidation as competition intensifies among providers

• Advanced fraud prevention technologies to reduce merchant risk

As BNPL becomes a standard part of the ecommerce toolkit, Shopify merchants who implement these solutions thoughtfully will gain a serious edge in both conversion optimization and attracting new customers.

By choosing the right BNPL solution for your specific business needs, you'll deliver the payment flexibility modern shoppers demand while driving sustainable growth for your Shopify store. The future of ecommerce checkout is flexible—and it's here to stay.