HOW DOES BNPL WORK?

6 APRIL 2021

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How does BNPL work? In the case of Klarna, it has three main components, as follows: 

  • Pay in 30 days – customers pay after trying the product. Here the customer does not pay a fee, unless they are late, but the merchant does
  • Instalments – customers can pay in four equal instalments and friction is reduced to just one step, while merchants pay discount fees of 2 to 6 percent of the purchase price
  • Financing – customers get to finance larger purchases over 3 – 36 month plans

Higher sales activity follows, says Klarna, with: 

  • Merchants seeing up to a 68% increase in average order value with instalments
  • Average order values for retailers offering financing increasing 58 percent, and
  • Retailers experiencing a 20 percent increase in purchase frequency for customers who pay in 30 days

On top of all that Klarna reckons that 44 percent of customers would have abandoned purchases if a pay-later facility was not available.