Buy-now-pay-later is an emerging alternative to traditional credit that gives consumers (and now businesses) instant access to 0% interest micro-loans at the point-of-sale, which are then paid back in installments, usually over six to eight weeks – often referred to as the “pay-in-four” model. It offers some significant benefits to merchants, including a much higher average spend per transaction – 45% higher, according to BNPL pioneer Klarna

While still in its infancy, BNPL saw significant growth during the COVID-19 pandemic. But, today, with new competition, pressure on consumers from rising inflation, and increasing costs of borrowing, buy-now-pay-later is going through a period of turbulence that has seen some of the pioneers and leaders in the space struggle with layoffs and heavy devaluations. Now, BNPL companies are looking for new ways to reach new payments customers and reignite the growth they enjoyed from 2019 through 2021, and business-to-business payments may be the key to turning things around. 


Buy-Now-Pay-Later Has Enjoyed Strong Growth, Particularly with Young Consumers

Buy-now-pay-later made up 4% of all U.S. retail ecommerce payments in 2021, up 300% from 2019. It also saw a strong push among brick-and-mortar retailers in 2022. While BNPL’s overall share of the payments market is still small, there is no question that consumers responded very positively to it throughout the pandemic – especially young consumers. According to the Consumer Financial Protection Bureau, almost 50% of BNPL buyers are under the age of 33. And, while Gen Z didn’t represent the largest user base or the highest growth, they were by far the most likely to use BNPL – 1.44 times more likely than the general population. 

BNPL payments’ success with younger consumers can be attributed to a number of factors, not the least of which is their digitally-native comfort level with new payments technologies. GenZ and millennial consumers opting for BNPL payments cite everything from the stability of keeping extra money in their pockets, to making “treat yourself” purchases more palatable, to feeling like they can make purchases sooner than they otherwise would have. 



Rising Interest Rates and Runaway Inflation Have Hurt the Sector in 2022

For all the growth buy-now-pay-later payments saw during the pandemic, 2022 has been a rough year due to a convergence of difficult economic conditions. Consumer price increases hit a 40-year-high this year. And, while BNPL allows payments to be deferred, the bill still comes due, making buy-now-pay-later as susceptible as any other payment method when consumers’ disposable income suddenly tightens.

At the same time, major increases in interest rates are putting serious strain on BNPL companies’ profitability. The global pandemic represented a huge opportunity for buy-now-pay-later companies largely thanks to the 0% interest rates offered by many central banks. Today, with the federal reserve interest rate topping 3% – with further potential increases to come – the cost of borrowing and, in turn, the margin on BNPL payments look very different. 

With losses mounting and competition growing as fintechs like Apple Pay enter the space, some of the pioneers of BNPL are struggling. Leading Swedish firm Klarna had to lay off 10% of its staff in early 2022, and saw its valuation drop by 85% over the summer. Affirm saw a similar devaluation. 


Buy-Now-Pay-Later Companies are Looking to B2B Sales to Reignite Growth

Despite the turmoil the BNPL sector has been navigating on the consumer side, there is a potential silver lining – business-to-business payments. The same economic conditions causing consumers to tighten their purse strings are also impacting businesses. And, with the cost of capital going up while cash flows get tighter, businesses are looking for new ways to keep the bills paid and the lights on. B2B buy-now-pay-later solutions allow businesses to defer payments to vendors in exactly the same way consumers have with retailers. Some critics point out that net invoice terms usually see payment deferred by 30 to 60 days or more anyways, but B2B BNPL does offer some key differences, not the least of which is that vendors get paid immediately, rather than waiting the full length of a traditional invoice term. 

It’s yet to be seen whether B2B BNPL companies like Billie and Bespoke Financial will be able to grow while the retail side of the space struggles, or whether giants like Klarna and Affirm will shift towards B2B. But, what is clear is that amid dropping valuations and shrinking profit margins, buy-now-pay-later companies have no choice but to do something differently if they’re to survive the current period of explosive inflation and rising interest rates. 


Merchant Services Providers Need BNPL to Compete with Disruptive Fintechs

While B2C BNPL may be waning right now, and B2B BNPL is yet to prove itself, the convenience and options buy-now-pay-later offers buyers and the additional average spend it promises merchants mean it’s probably here to stay. With the number of payment options rising and ever-growing choice for both buyers and sellers, it’s crucial that traditional payments providers ensure they can offer merchants frictionless access to BNPL.

Even though buy-now-pay-later still represents a small slice of the overall market, it is nonetheless an increasingly important part of omnichannel payments, representing a big opportunity for acquiring banks, as NMI CEO Vijay Sondhi recently told American Banker. NMI’s full commerce enablement platform aims to provide ISOs and PayFacs with a one-stop solution for any and all merchant needs, including access to over 200 payment processors, a complete customer resource management solution through IRIS CRM, and an unparalleled selection of checkout and payment options – including buy-now-pay-later.    



IRIS CRM is the payments industry’s premier customer resource management system. It offers a complete suite of tools designed to automate and streamline everything from merchant acquisition, to onboarding, to residuals calculations, to administration, to customer service, and beyond. IRIS CRM enables your ISO or PayFac to do more with less, outcompeting bigger players while saving significant amounts of time and resources. As part of NMI’s full commerce enablement system, IRIS CRM also allows your ISO or PayFac to handle the entire merchant lifecycle, from initial prospecting through acquisition and onboarding, processing, and support, all through a single, centralized platform. 

To find out more about everything IRIS CRM and NMI can do for your company, schedule a free guided