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Buy Now, Pay Later: A History Lesson in Shopping Habits

April 6, 2023 · Min Read

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Buy now, pay later (BNPL) is a way of shopping that has been around for centuries, but it’s surged in popularity with Millennials and Gen Z. The concept seems simple—buy something now and pay for it later—but there’s more to it than that. Below, we take a quick history lesson on BNPL, explain how modern platforms work, and outline benefits, trade-offs, and tips for responsible use.

The History of BNPL

BNPL has deep roots. While the user experience has evolved—from handwritten ledgers to sleek mobile apps—the core idea remains the same: spreading payments over time to make purchases more accessible.

16th–19th Century: Local Merchant Credit

Early versions of BNPL appeared as informal store credit. Local merchants extended goods on tab, tracked balances in ledgers, and charged interest if debts weren’t settled by an agreed date. This allowed customers to access essentials even without immediate cash on hand.

1930s–1970s: Layaway & Installment Plans

As retail scaled, formal installment plans and layaway emerged. Shoppers paid over time (often before receiving the goods), which reduced default risk for retailers and made bigger purchases manageable for consumers.

1980s–2000s: Store Cards & Catalog Credit

Department store cards and mail-order catalogs popularized revolving credit. While convenient, interest rates and fees sometimes made borrowing costly—paving the way for alternatives focused on clearer, shorter-term payments.

2010s–Today: Digital BNPL Platforms

Fintech providers reimagined BNPL for e-commerce and mobile checkout. Services like Klarna, Afterpay, Affirm, and Sezzle let shoppers split purchases into installments—often interest-free for short terms—via a few taps at checkout.

How Modern BNPL Works

While each provider differs, the core flow is consistent: a shopper selects BNPL at checkout, the BNPL provider pays the merchant (minus a fee), and the shopper repays the provider over time.

Common BNPL Models

• Pay-in-4 (short-term, usually interest-free): Four equal payments over six to eight weeks. Late fees may apply.
• Longer-term installments: Monthly payments over several months; may include interest.
• Virtual cards & in-store: One-time BNPL cards or QR/tap methods extend BNPL beyond e-commerce.

Who’s Involved

• Consumer: Chooses BNPL and agrees to the repayment schedule.
• Merchant: Receives funds quickly, typically pays a provider fee, and may see higher conversion/AOV.
• BNPL Provider: Assesses risk, advances funds, and collects installments (plus any fees/interest).

Fees & Terms (High-Level)

• For consumers: Short-term plans often have no interest, but late or missed payments can trigger fees. Longer-term plans can include interest.
• For merchants: Providers charge a fee per transaction; in return, merchants may see improved checkout conversion and basket size.

How Millennials & Gen Z Use BNPL

Millennials and Gen Z prize convenience, mobile-first experiences, and budgeting flexibility. BNPL aligns with those preferences by offering quick approvals, predictable payments, and clear schedules at checkout.

What’s Driving Adoption

• Frictionless checkout: One-tap flows reduce cart abandonment.
• Budget smoothing: Smaller, scheduled payments are easier to manage than a single lump sum.
• Perceived safety vs. revolving credit: Fixed-term installments can feel more transparent than open-ended credit lines.
• Mobile UX: Intuitive apps, reminders, and integrated wallets make tracking payments simple.

For an overview of consumer protections and market trends, see CFPB’s BNPL guidance.

Benefits and Trade-Offs for Shoppers

Potential Benefits

• Cash-flow flexibility: Spread costs without opening a new credit card.
• Predictable payments: Clear schedules can simplify budgeting.
• Fast decisions: Quick approvals enable smooth checkout.

Important Trade-Offs

• Late fees & missed payments: Can add cost if not managed carefully.
• Overspending risk: Smaller payments may encourage unplanned purchases.
• Returns & refunds complexity: Refund timelines can vary by provider and merchant policy.
• Data practices: Review privacy policies to understand data sharing and marketing use.

BNPL for Merchants

Retailers adopt BNPL to boost sales and customer satisfaction, but should weigh economics and operations.

Merchant Advantages

• Higher conversion rates: More shoppers complete checkout.
• Larger average order value (AOV): Installments can increase basket size.
• Faster settlement: Providers typically pay merchants soon after purchase.

Considerations & Costs

• Provider fees: Transaction fees impact margin; compare providers and plan types.
• Return handling: Align BNPL flows with your returns, exchanges, and refunds process.
• Disputes & fraud: Understand protections, chargeback handling, and risk controls.
• Compliance: Keep an eye on evolving rules in your market (e.g., disclosures and data rights).

For regulatory context and evolving oversight, review FTC small business guidance and your local regulator’s updates.

Tips for Responsible BNPL Use

• Know your schedule: Add payment dates to your calendar and enable reminders.
• Budget first: Treat installments like fixed bills to avoid stacking obligations.
• Read the fine print: Understand late fees, interest (if any), and return/refund timing.
• Limit open plans: Avoid juggling too many concurrent BNPL purchases.
• Protect your credit: Some providers may run soft or hard checks—know the implications.

Popular BNPL Providers

• Klarna
• Afterpay
• Affirm
• Sezzle

Conclusion

Buy now, pay later is an age-old idea with a modern, mobile-first spin. Its resurgence—especially among Millennials and Gen Z—reflects how we shop today: seeking accessibility, convenience, and flexibility. As BNPL continues to evolve, expect further innovation, clearer protections, and deeper integration across online and in-store experiences. Used wisely, BNPL can be a helpful tool for shoppers and a growth lever for merchants.

Further Reading

• Consumer Financial Protection Bureau: Buy Now, Pay Later
• Bank for International Settlements: BNPL overview
• Federal Trade Commission: Consumer Advice