Should Your Store Offer Buy Now, Pay Later? Fees, Risk and How to Test It

A customer is looking at a $400 jacket in your store. They want it, but $400 today feels like a lot. Then they see “or 4 interest-free payments of $100” under the price, and the purchase suddenly feels manageable. That’s the pitch for buy now, pay later (BNPL), and it’s why so many checkouts now show Affirm, Klarna, Afterpay, PayPal Pay Later or Shop Pay Installments next to the card fields.

For a merchant, though, the question isn’t whether customers like BNPL. It’s whether offering it makes you more money after fees. This guide explains how BNPL works from the store’s side, what it costs, who takes the risk, and how to test it properly.

How BNPL works for a merchant

From the shopper’s side, BNPL splits a purchase into installments, often 4 payments every 2 weeks with no interest, or a longer monthly plan that may carry interest. Our guide on how buy now, pay later works and what it does to your credit covers the consumer view.

From your side, the flow usually looks like this:

1. The shopper picks a BNPL option at checkout and is approved by the provider in seconds.
2. The provider pays you the order total, minus its fees, usually within a few business days.
3. The shopper repays the provider, not you.
4. If the shopper misses payments, the provider deals with it.

Affirm, for example, says it pays merchants upfront and in full, less a merchant discount rate and a transaction fee, and that it takes on consumer repayment and fraud risk for transactions it approves. Terms vary by provider and program, so read your merchant agreement.

What BNPL costs merchants

BNPL providers make most of their money from merchants, not shoppers, especially on interest-free plans. The main pricing models:

• Merchant discount rate (MDR): a percentage of each order, often with a fixed per-transaction fee on top. Rates usually depend on the plan type you offer, your business size, your industry and your risk profile.
• Bundled pricing through your payment processor: some platforms and processors include BNPL as a payment method under their own pricing. Shopify, for example, says Shop Pay Installments has no activation fee but uses processing rates that are higher than standard Shopify Payments rates; you can view the exact rates in your admin.
• Promotional plan pricing: offering longer plans, or 0% interest on monthly plans, typically costs the merchant more, because you’re subsidizing the interest.

Exact rates vary widely by provider and merchant, and most providers don’t publish one standard rate, so get a written quote. The consistent pattern is that BNPL usually costs more per transaction than a standard card payment.

Also check what happens on refunds. Some providers don’t return their fees when you refund an order. Affirm, for example, says it does not refund the merchant discount rate or the transaction fee on refunds. If your return rate is high, that adds up.

Who carries the risk

This is where BNPL differs from offering in-house financing or layaway.

Credit risk: Under most BNPL agreements, the provider approves the shopper and takes the loss if they don’t repay. You keep the sale.

Fraud risk: Many providers take on fraud liability for orders they approve, but the details matter. Requirements such as shipping only to verified addresses or using approved integrations may apply.

Dispute risk: When a shopper disputes a BNPL purchase, for example claiming an item never arrived, the dispute usually goes through the provider’s process instead of a card chargeback. You’ll still need tracking, delivery confirmation and clear policies to win. Our guide on how to prevent and fight chargebacks covers the evidence that helps in any dispute.

Return risk: You process returns as normal, and the provider adjusts the shopper’s remaining payments. The fee question above is your main exposure.

The upside: what BNPL can do for your store

BNPL providers market higher conversion rates and larger order sizes. Those effects are real for some merchants and minor for others, and the providers’ own figures come from their best customers, so treat them as claims to test rather than promises.

Where BNPL tends to help most:

• Higher-priced items, such as furniture, electronics, fitness equipment, jewelry and premium apparel, where splitting the cost changes the decision.
• Stores with margin to spare, since a higher fee on a high-margin product hurts less.
• Shoppers who don’t use credit cards or prefer not to.
• Gift and holiday seasons, when budgets are stretched.

Where it helps least:

• Low-priced items, where a $20 order doesn’t feel expensive to begin with.
• Very thin margins, where the extra fee wipes out profit.
• High-return categories, if the provider keeps fees on refunded orders.

Key takeaway: BNPL is a pricing decision, not just a payment button. It’s worth it only if the extra orders and larger baskets it brings in produce more gross profit than the added fees cost you across all the orders that would have happened anyway.

The cannibalization problem

The most common mistake is assuming every BNPL order is a new sale. Many shoppers who choose BNPL would have bought anyway with a card. On those orders, you just pay a higher fee.

So the real math is:

Extra gross profit from new or larger orders − extra fees on orders that would have happened anyway = BNPL’s actual value

A quick illustration with made-up numbers: if BNPL costs you a few percentage points more than cards on every BNPL order, and half of BNPL users would have paid with a card anyway, the new orders and bigger baskets have to cover the extra fee on that whole half. That’s very achievable for a $500 product with 50% margins. It’s much harder for a $40 product with 20% margins.

To understand your baseline numbers first, see our guide to ecommerce metrics that matter.

Regulation: what merchants should know

In the US, BNPL rules mostly apply to the lender, not to you. In 2024 the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule treating many BNPL products like credit cards under the Truth in Lending Act’s Regulation Z. In May 2025, the CFPB said it would not prioritize enforcement of that rule and then withdrew it, effective May 12, 2025, along with dozens of other guidance documents. Some states regulate BNPL lenders through their own lending laws, and federal and state approaches may change. Check the CFPB’s BNPL resource page and your state regulator for current rules.

For merchants, the practical obligations are about marketing. Installment messages such as “4 payments of $25” must be accurate, include the real terms, and follow your provider’s approved wording. Don’t imply that everyone qualifies or that plans are always interest-free if some aren’t. This is not legal advice.

Where to start: how to test BNPL on your margins

1. Check your numbers. Note your current conversion rate, average order value (AOV), gross margin and return rate by product category.
2. Get quotes. Ask 2 or 3 providers, or your payment processor, for written rates for the plan types you’d offer, and ask how fees work on refunds and disputes.
3. Start with what’s easiest. If your processor or platform already supports a BNPL option, it’s usually the simplest to turn on. Our guides to accepting payments on your website and Stripe vs PayPal cover the main options.
4. Limit the test. Many providers let you set minimum order amounts. Start by offering BNPL only above a threshold, such as orders large enough that installments feel meaningful.
5. Add messaging carefully. Installment messaging on product pages often matters as much as the checkout button. Use the provider’s approved widgets.
6. Run it for a set period. At least several weeks, and avoid comparing a holiday month with a normal month.
7. Measure the right things: overall conversion rate, AOV, the share of orders using BNPL, blended payment cost as a percentage of revenue, and gross profit per session. Not just “BNPL orders.”
8. Decide and adjust. Keep it, raise the minimum order amount, limit it to certain categories or turn it off.

If your checkout already loses people at the payment step, fixing friction may matter more than adding options; see why shoppers abandon carts.

The bottom line

BNPL can be a smart addition for stores selling higher-priced, higher-margin products, especially because the provider usually takes on the repayment risk. But it costs more than cards, some fees may not come back on refunds, and many BNPL shoppers would have bought anyway. Get written rates, test it with a minimum order amount, and judge it on total gross profit, not on how many customers click the button. For more payments terms, see our glossary.

Sources

• Affirm Business Hub: Getting started FAQ — upfront payment, merchant discount rate and refund fee terms
• Affirm Docs: WooCommerce overview — Affirm assuming repayment and fraud risk
• CFPB: Buy Now, Pay Later (BNPL) products — status of the 2024 BNPL interpretive rule
• Federal Register: Interpretive Rules, Policy Statements, and Advisory Opinions; Withdrawal (May 12, 2025) — withdrawal of CFPB guidance including the BNPL rule
• Shopify Help Center: Getting paid for Shop Pay Installments orders — Shop Pay Installments rates compared with standard processing