Natalie Monko Lead Project Manager

    Buy Now Pay Later Technology: What You Should Know in 2022

    Buy Now Pay Later (BNPL) services let you make purchases and postpone a payment or split it into regular smaller ones. In contrast to credit cards, such services charge no interest on payments and do not scrutinize credit history before approving the bill. As people get tired of tedious loan application processes and desire more financial freedom, short-term financing services such as BNPL are getting increasingly popular, especially among the younger generation. In the US, spending on BNPL has more than doubled since the onset of the pandemic in 2020, while the global market size of BNPL is predicted to exceed $20 billion by 2028.

    Buy now pay later services are among the hottest fintech startups and pose a serious threat to established banks that often have a hard time quickly adapting to the market driven by digital technologies. Through our projects for trading platforms, banks and e-commerce, Surf has gained extensive experience in building mobile apps and using the latest solutions in Artificial Intelligence (AI) and Machine Learning (ML). 

    In this article, we’ll explore what is buy now pay later concept, how it works, the industry’s current trends and what the most prominent BNPL platforms offer to their customers.

    Benefits of BNPL

    Buy now pay later platforms, also called point-of-sale (POS) financing, provide a convenient way for shoppers to spread the cost of purchases, such as clothing, electronics and furniture, over several weeks or months. The service provides several benefits to merchants and fintech as well:

    • Low-cost cross-selling of banking products. When customers decide to use the BNPL option at a checkout, they sign up to use the service, share their details, install a dedicated app to track payments and so on. This level of engagement creates multiple opportunities for fintech companies to cross-sell other banking products, such as bank accounts and credit cards, at low costs, compared to other channels of customer acquisition.
    • Revenue increase. Many BNLP providers shift from being simply integrated at a checkout stage of a merchant’s website into full-scale shopping apps. For example, Afterpay reports that 17% of their customers initiated purchases within the Afterpay shopping app (February 2021), while Klarna app allows people to shop and use the service even at the stores where Klarna is not integrated at the checkout stage. Continuous engagement throughout the customer journey provides affiliate marketing buy now pay later options for merchants, which can help attract new clients and drive revenue up.
    • Brand positioning. Many BNPL services invest heavily into social media marketing and celebrity branding. For example, Klarna, known for focusing on Gen-Z customers, has over 46 million views of their paid video ads by September 2021. The strong brand positioning of BNLP services works not only towards increasing their customer base, but also towards attracting shoppers to the stores that support such services, so these co-marketing opportunities should not be overlooked by the merchants.

    Top BNPL services


    An Australian-based startup, Afterpay provides 0% interest on BNPL loans without a credit check or reporting to credit bureaus, so using the service doesn’t affect customers’ credit scores in any way. However, the service charges an $8 fee for every late payment and is unlikely to approve a substantial purchase to a new client. The platform also lets users issue a buy now pay later virtual card, add it to their digital wallet and pay with it in supported stores.

    afterpay app

    PayPal Pay in 4

    The global finance corporation PayPal is also a provider of one of the most popular BNPL platforms — Pay in 4. The service allows shoppers to divide a payment no higher than $1,509 into four installments, which are due every two weeks. The first payment is made at the time of purchase. Pay in 4 has no late fees and doesn’t report to credit bureaus, but because it is currently available in only 44 US states and has a relatively low credit limit, it might not be the option for everyone.

    pay in 4 apps


    California-based startup Affirm lets customers borrow up to $17,500 and pay with no interest for up to a year. However, Affirm conducts credit checks of their customers (which can be a good thing, since timely repayments may improve credit score) and some of their buy now pay later programs bear interest, depending on the merchant. Also, if a customer decides to return an item, Affirm won’t refund the interest already paid. Their mobile app allows users to shop at tens of stores in one place, get access to various deals, and even set up Affirm Savings high-yield savings account.

    affirm app


    Founded in 2005 in Sweden, Klarna is a fintech startup with over 90 million users and 250,000 merchants. With Klarna, customers can divide their purchase into four equal payments over a period of six weeks with no interest without any impact on their credit score. Also, the BNPL service provides a 6 to 36-month financing option for large purchases, which, however, comes with interest. Customers can issue Klarna’s virtual banking card and pay with it even at stores that don’t support the service at the checkout.

    klarna app

    BNPL business models

    Different BNPL services are focused on different price segments and use case scenarios. In this part, we’ll review the five most common BNPL business models.

    Off-card financing

    In this model, shopper checkouts at the merchant website or app, choose to pay with BNPL service and pay down the payment from their debit card in four-six weeks with zero Annual Percentage Rate (APR), in case of short-term financing for smaller purchases under $300. The payment can be stretched over 6-8 months, in case of long-term financing for purchases under $1000 (such loans usually come with some APR). Basically, this model is just a cheaper credit for customers and it poses a severe threat to the volume of credit card transactions.

    Integrated shopping app (super app)

    The most prevalent buy now pay later business model among big players is a shopping app that lets customers shop at all supported marketplaces at once. The model allows driving engagement at every step of the customer journey, from browsing items to checking out. BNLP super app can monetize longer duration of user engagement by setting up loyalty & rewards programs, and increase its revenue via advertising, for example, selling top places in searches or particular item categories.

    zip app


    The rent-to-own model means a client makes an initial deposit (can be as low as $1) and then scheduled payments over several months. When all payments are done the client becomes the owner of a purchased item. Often used for large home appliances and furniture, the rent-to-own model offers fast approval without a credit check, flexible payment dates and an option of an early buyout. Because rent-to-own is considered not a credit but a lease transaction, additional rental or leasing fees may apply and customers can end up paying more than if purchasing the item with cash. Although accessible for the majority of people regardless of their credit history and offering more time to pay than other BNPL models, some rent-to-own stores have been criticized for unjustified price increases.

    Card installments

    The card-linked installments model is used by services to let users split large purchases into smaller payments by using their existing credit cards with no additional fees and credit checks. Some of the most popular services in this category are Citi Flex Pay and Splitit. With Splitit, a user chooses Splitit as a checkout option at the store, selects the suitable number of payments and enters credit card details. Initially, Splitit pre-authorizes a part of the purchase sum as a guarantee for the payment, and then deducts payments at regular intervals, re-authorizing the hold and reducing the amount each month. The benefit of such a model is that shopper receives all benefits of paying with their credit card, such as transaction insurance, rewards and cashback.

    checkout with splitit

    As BNPL solutions created by fintech startups become a bigger threat to credit products of more established finance companies, big finance players are looking for ways to hold on to their market share. A prominent example of a card-linked installments model adopted by a large corporation is Mastercard Installment Payment Service. Launched in the fall of 2021, the service provides an API for banks to let their card users break big purchases into smaller ones.

    Business financing

    While many small businesses rely heavily on bank finance to fulfill their cash flow and investment needs, traditional debt poses challenges to innovative and fast-growing companies with a higher risk-return profile. This makes BNPL solutions, such as Dell Financial Services a great option of acquiring instant credit on flexible terms. The benefits of partnerships between fintech and small business are mutual: as entrepreneurs integrate a BNPL option into their payment ecosystem, lenders get a clear picture of a company’s repayment ability and risk profile, easing credit evaluation and increasing loan disbursal volume.

    BNPL trends in 2022

    With the rapid rise in popularity, it is clear that BNPL services are here to stay, as more consumers choose the convenience of their financing solutions instead of traditional credit.  Let’s take a look at the trends that are likely to define the BNPL industry in 2022. 

    Advanced fraud protection

    Because of the short tenure of BNPL loans, it is not common for a consumer to have their financial situation change so dramatically that they are unable to repay the loan. However, the absence of credit checks and other customer evaluations might attract users with the intention to defraud. To mitigate such risk, BNPL services need to analyze SKU-level (inventory) data and use advanced underwriting integrated into merchants’ order management systems. 

    Artificial Intelligence and Machine Learning open many possibilities for financial risk management, quickly analyzing vast amounts of data and finding dependencies and correlations that go unnoticed to the human eye. For example, when Surf participated in the Russian Artificial Intelligence Forum 2017 championship, our team created AI-powered real-time purchase probability prediction for retail chain. We used a convolutional neural network that analyzes a client’s behavior using a mathematical model to estimate how likely a user is to make a purchase while they are still browsing the store’s website. Such tools can be helpful to discover BNPL users with bad intentions before they make a loan. Learn more about AI usage in finance in our dedicated article.

    Go global

    Since international online stores grow in popularity and the buy now pay later concept appeals to shoppers across all five continents, a successful BNPL service has all chances to get out of its local market borders and have clients across the globe. And this is what major BNPL players do: European Klarna and Australian Afterpay are rapidly expanding into the US, while in September 2021 American PayPal bought Paidy — a leading Japanese payment platform and provider of BNPL solutions.

    More regulations to come 

    As money flows switch from big established financial institutions to newer fintech companies, government regulators inevitably show more interest in the sphere. To protect consumers or simply ‘keep things under control’, the growing attention of policymakers towards innovative financial services is one of the key challenges for fintech. And buy now pay later services are no exception here. 

    One of the major concerns with the BNPL is the ease with which the services give credit to people who already have poor financial health and debts, forcing them to take on even more financial obligations they can hardly fulfill. While extensive credit checks would kill one of the main benefits of BNPL, the Open Banking concept based on using open APIs and sharing data across financial companies for more transparency can help here — customers’ latest financial data can give affordability insights faster and more accurately than credit bureaus. Education in personal budgeting and widespread financial literacy is another important step towards helping people get out of a vicious debt circle and improve their financial health. 

    All in all, any company starting in the sphere of BNPL should be prepared for regular and extensive dialogues with the government. One or several lawyers with comprehensive knowledge of the latest local laws in the sphere of finance are a must-have for the team. Discover the main aspects of fintech compliance in our dedicated article.

    Rise of auxiliary services

    Buy now pay later companies require debt collection, fraud protection, insurance, analytics, chargeback and refund services. Demand for such auxiliaries is likely to grow along with BNPL popularity and we would see many fintech startups emerge and work alongside BNPL companies or get acquired by them, as it happened with Returnly, a platform that issues an instant credit when a customer initiates an item return, which was acquired by Affirm for $300m in spring of 2021.    

    Future alternative to card networks

    Looking at checkout pages of various e-stores it is impossible not to notice how often logos of BNPL services can be seen along with logos of Mastercard, Visa and American Express. Many experts in the fintech industry predict that BNPL would become more than just an additional convenience and steal transaction volume from major card networks. As BNPL brands build consumer loyalty by improving approval rates for frequent users and persuade them to shop via buy now pay later apps, BNPL can be seen as potential parallel payment systems to Visa or Mastercard. The stable worldwide growth of BNPL shows that such a scenario is highly probable.


    Recently, BNPL services have established themselves as a flexible and convenient alternative to online credit solutions offered by banks. In contrast to online credits from large finance corporations, which often lack flexibility and innovation, BNPL services focus not only on the final stage of the customer journey, namely the checkout, but try to be with the customer along the whole journey via super apps that combine offers of all available merchants. Also, the absence of traditional credit checks not only speeds up the process but attracts a new younger audience. However, the ease of credit application with BNPL requires sophisticated AI and ML technologies to mitigate risks of fraud and protect those already mired in loans from worsening their situation.

    Because more and more people shop on the go via mobile apps, one of the key success aspects for BNPL integration is how convenient it is for using on a smartphone, from processing speed to UX design. Surf has been in app development for almost 10 years, and we’ve created multiple apps for banks, trading platforms and e-commerce. If you think of integrating BNPL solution in your product or creating your own fintech app, fill in the short form, and we’ll contact you to discuss the details.