BNPL (Buy Now, Pay Later)
Buy Now Pay Later (BNPL) is a short-term installment financing product embedded at the point of sale, allowing buyers to split a purchase into equal payments over weeks or months — typically interest-free if paid on time.
BNPL products are a form of embedded lending — the financing decision is made in milliseconds at checkout, funded either by the BNPL provider or a bank partner, and repaid in 4 equal installments over 6 weeks (the common "pay in 4" model) or in monthly installments over 3–24 months for larger purchases.
BNPL economics: BNPL providers earn merchant discount rates (2–8% of transaction value) from merchants in exchange for instant approval and guaranteed payment. Some also charge consumer late fees or interest. Merchants accept the fee because BNPL increases average order value and conversion rates.
For embedded finance programs, BNPL is a specific form of embedded lending with its own underwriting model (typically based on soft credit pulls and alternative data), regulatory treatment (varies by product structure — installment loans versus credit lines), and sponsor bank requirements.
BNPL vs. traditional lending: BNPL underwriting is optimized for speed (instant decision) at the cost of traditional credit depth. Losses are managed through ticket size limits and velocity controls rather than traditional credit scoring.