BNPL companies typically make money via merchant fees rather than interest

What is buy now, pay later?

The buy now, pay later industry allows consumers to buy something immediately and pay in installments, typically without the need for applications or credit scores associated with credit cards. BNPL has boomed in the last decade, led by fintech companies Affirm, Klarna, and Afterpay, which have targeted young adults. Some critics say BNPL is a reinvented version of payday loans that allow borrowers easy access to cash with relatively few barriers.

Buy now, pay later loans typically split payments into 4 installments

While they're marketed as "interest-free" loans, BNPL loans often have penalties for late payments, such as late fees in varying amounts depending on the BNPL company used to make the purchase. BNPL users often pay 25% of the BNPL loan at checkout, and then pay the remaining balance in three more installments over the course of roughly six weeks, depending on the BNPL company and agreement.

BNPL's biggest risks include the ability to stack multiple loans simultaneously

Buy now, pay later loans come with some risks, such as the hefty late fees that can add up over time in the case of missed payments. However, personal finance experts say that tactics like reading the fine print can help consumers use these financial tools more safely.

Buy now, pay later loans from 'BNPL' companies—which allow online shoppers to buy something immediately and pay for it in installments—are becoming more popular, with nearly half of millennials and Gen Zers using them.

Gap and Sephora now accept BNPL, despite paying up to 8% per sale

Despite these merchants paying roughly 2% to 8% of each sale's cost (more than they pay for most credit card processing fees), they're signing on, in part, because BNPL can help them improve their conversion rates at checkout.

The BNPL industry boomed amid a surge in online shopping during pandemic-era lockdowns

The buy now, pay later industry allows consumers to buy something immediately and pay in installments without the need for lengthy application and approval processes or high credit scores—and fintech companies Affirm, Klarna, and Afterpay are leading the charge by targeting young adults.

BNPL may be adding a layer of debt that doesn't show up in economic data

Given somewhat limited regulation in the BNPL space, data about its usage is limited—many BNPL firms have resisted sharing information about user purchases, finances, and more thus far. As more people begin using buy now, pay later services, experts are concerned about whether BNPL is adding a new layer of "hidden leverage" to the economy.

Affirm's COO recently said that the company believes the credit card is 'going the way of the VHS tape'

Some people use buy now, pay later apps as an alternative to credit cards. BNPL services have a lower barrier to entry than credit cards—many frequent BNPL users have low credit scores.

Why consumers could soon see the impact of buy now, pay later loans on their FICO credit scores

FICO rolled out its first-ever BNPL-specific credit scoring models in June 2025. While missed installments can now negatively impact a credit score, there's also the potential for on-time BNPL installment payments to help boost scores.

BNPL has 19th-century roots, but the pandemic made it mainstream

The modern BNPL model didn't take off until the COVID-19 pandemic, when consumers were stuck at home and lockdowns forced them to shop online rather than in person. The number of US BNPL loans grew more than tenfold from 2019 (16.8 million) to 2021 (180 million), according to a Consumer Financial Protection Bureau report.

The story of Apple Pay Later, a short-lived BNPL service

Apple rolled out its own buy now, pay later service in 2023, but Apple shut it down the following year. Instead, Apple made changes to let its Apple Pay users make purchases and access installment loans through BNPL company Affirm.

The Consumer Financial Protection Bureau is looking closely at BNPL

Given the lack of data around BNPL services in comparison to other financial products such as credit cards, the CFPB has conducted research to better understand BNPL products and how they could harm and benefit consumers.

Over 25% of Americans regret using BNPL due to unexpected costs

Almost 24% of buy now, pay later users have missed payments, with younger users (32% of 18- to 29-year-olds) being more likely to fall behind on payments than their older counterparts. (Only 12% of adults age 60 or over had done the same.)

Credit card companies make money through interest, annual fees, and more

They also profit from interchange fees, the fee the retailer has to pay the credit card network in order to facilitate a transaction. The fee is typically between 1% and 3% of the transaction amount.

The story of Klarna's IPO

BNPY company Klarna went public on the NYSE in September 2025, roughly 20 years after it was founded. At the time, Klarna made roughly three-quarters of its revenue via merchant fees, charging a small premium for each purchase.

The story of Klarna, founded in 2005 before BNPL was a category

Klarna was founded in 2005 in Sweden under the name Kreditor long before BNPL apps became commonplace. The podcast hosts interviewed founder and CEO Sebastian Siemiatkowski in 2024, where he shared the story of how he built the company.

Merchants have to pay credit card transaction fees each time a card is swiped

Credit card networks such as Visa, Mastercard, and American Express must calculate fees for not only the customer, but also the merchant in every transaction.

Banks have increased small loan programs since 2018, upping competition for payday lenders

One of the reasons payday lending flourished for nearly two decades is that most banks charged high overdraft fees and didn't offer small loans. However, since 2018, banks have increased their small loan options. Supporters say this provides safer alternatives for consumers, as banks are subject to more regulatory measures and are less likely to allow consumers to keep rolling over loans.

Some argue that advance payday apps aren't markedly different from payday loans

Some apps, like EarnIn, allow users to get money from their paycheck in advance. These apps access users' banking information, allowing the company to immediately take back any borrowed money and track users' financial situations to evaluate their risk. Unlike traditional payday lenders, these apps often waive the right to sue users who don't pay back the initial principal and don't charge interest, but rather ask users for a tip. (Some users may experience a paywall.)

American Express runs on a 'spend-centric' model, using perks and merchant fees to drive profit

American Express cardholders tend to spend more money per transaction than other credit card users, which makes the interchange fees merchants have to pay to accept American Express cards worth it while incentivizing other companies to pay the interchange fee as well.

Why American Express charges merchants more than other card companies to accept AmEx

Each card network charges merchants a discount rate, which is a fee merchants pay to accept cards. American Express charges higher discount fees than competitors like Visa and Mastercard as the business is more reliant on fees for operation.

Private equity firms often use leveraged buyouts to acquire new companies

In a leveraged buyout or "LBO," private equity funds finance acquisitions with debt secured by the target company's assets and cash flows. The PE firm aims to improve operations and leverage the company's profile to pay down debt, thereby increasing equity value.

An explanation of hard credit checks vs. soft credit checks

Some buy now, pay later services do a soft credit check rather than a hard credit check, like credit card companies would do when someone applies for a card. While hard credit checks can impact your credit score, soft pulls typically do not.

American Express charges merchants more than other card companies to accept AmEx, making Visa a more accessible option for many merchants.

Each card network charges merchants a discount rate, which is a fee merchants pay to accept cards. American Express charges higher discount fees than competitors like Visa and Mastercard as the business is more reliant on fees for operation.

'Payment in kind' is a compensation method that uses alternatives to cash

Companies can make payments using goods, services, or additional securities instead of cash, helping companies preserve their cash flow. Public BDCs receive roughly 8% of their investment income via PIK.

The costs and fees for a payday loan include a 'finance charge'

Payday lenders typically make money via finance charges, a percentage or dollar amount that the borrower owes the lender per $100 borrowed. While the finance charge can range from $10 to $30 for every $100 borrowed, this would equate to an annual percentage rate of almost 400 percent for a two-week loan.

Payday lenders usually require borrowers to post-date a check or provide access to an electronic bank account

If borrowers can't pay back the loan, they can be subject to overdraft fees from their bank and other fees from the payday lender—further exacerbating the debt borrowers face.

Peloton pays artists more for music than most streaming platforms because the on-demand classes are technically live performances, so Peloton has to pay both for the rights to the song itself and for the right to actually play the song.

The Paypal-owned Honey app and RetailMeNot are popular places consumers find digital coupons today

With digital coupons overtaking physical ones as the most commonly redeemed coupons, customers flock to these sites and apps for coupons and discount codes, often checking multiple of them before making an online purchase.

A list of major companies that accept cryptocurrency as payment

Have a fistful of Bitcoin? SpendMeNot provides a fascinating infographic that shows which companies currently accept the cryptocurrency. If you want to know where you can engage in Bitcoin transactions, this extensive resource directs you to the right merchants. Food, jewelry, banks, travel services and more are all represented here.

Card issuers are financial institutions that open credit to customers, while card networks facilitate purchases between merchants and customers

Card issuers give customers credit cards, set rate limits, and collect payments. Card networks, on the other hand, dictate where credit cards can actually be used by managing relationships between the network and merchants. These networks make money on interchange fees, which merchants pay to accept a specific card network at their stores.

Paying a fee to delay paying back a loan in full is called 'rolling over' the loan

Borrowers sometimes roll over loans when they aren't able to pay back the full principal balance and accrued interest. A rollover extends the amount of time the borrower has to repay the loan, but does not decrease the amount of money the borrower has to pay back.

Consumers will use digital payment processing for nearly $40T in spending by 2028

That's just one signal of the industry's massive growth. Investments in the global fintech industry have grown from $4B in 2010 to $92.3B in 2021, as both businesses and consumers seem to quickly adopt new fintech products, from digital payment apps to robo-advisers.

Peloton makes most of its money via monthly subscriptions

Peloton has two core revenue streams: the exercise equipment it sells and the company's monthly subscription that gives users access to its class library. More than half of Peloton's revenue comes from the company's core product, the monthly subscription. Its "Peloton App+" membership tier is $28.99 per month.

Apple Pay is activated on more than 78% of US iPhones

As a result, some banks worry they could be losing ground to the tech company. As consumers continue to use Apple Pay instead of pulling out their physical debit card to pay for everyday items, some banks are fighting back in the digital wallet war.

Some borrowers end up with higher student loan balances than they started with, even after years of paying, due to 'negative amortization.'

Find out ways to get lower rates on private loans, such as applying with a cosigner.

Banks make money by loaning customer deposits and earning interest

This means the interest you earn on your deposits is lower than what the bank earns on the same amount. Banks often keep cash reserves (though a minimum requirement was rescinded in 2020) but generally invest in government bonds, corporate securities, and loans to other banks. During bank runs, depositors withdraw more than the bank has on hand.

The payments tool Zelle was created by big banks to compete with apps like Venmo

Zelle is an alternative to Venmo, where people can pay each other back for expenses like apartment utilities or dinner. But its origin story has more to do with big finance than small transactions.

Financial institutions check for lots of things before authorizing a purchase

Before authorizing a purchase, card issuers consider whether or not the cardholder has a high enough available credit limit to make the purchase, where the purchase is being made in order to reduce fraud, and more.

Companies sometimes issue corporate bonds to raise capital

These bonds offer investors regular interest payments in addition to the return of the principal amount at maturity. They allow companies to raise capital without losing ownership.

Private credit is a nonbank loan made directly to a business

Similar to private equity, private credit is part of the private markets world. Both strategies offer illiquid, privately negotiated investments for privately held companies. Unlike private equity investors, however, private credit investors typically do not take ownership stakes in the companies they invest in.

The private credit industry—which offers nonbank loans directly to businesses, particularly privately held midmarket companies—grew from a $250B asset class in 2010 to around $1.5T in early 2024.

People who take out payday loans often know they are a bad deal

Despite common criticism that payday lenders take advantage of uninformed borrowers, some people who take out payday loans know they are usually a bad deal, but often feel like they don't have any other options. Payday loans are often considered a symptom of poverty. (Some users may experience a paywall.)

How fee-free Robinhood makes money

Robinhood is both loved and hated by retail investors. Although its mobile app is easy to use and transactions on its platform are fee-free, many individuals have taken issue with a controversial practice that drives 75% of its revenues. Robinhood uses payment for order flow, essentially taking payment from other brokerages to redirect users’ trades. Read up on how PFOF works here.

American Express is both a card issuer and a processing network

Unlike most credit card companies, American Express issues credit cards and processes payments—something called a closed-loop model. By offering both services, American Express profits from both interest and interchange fees, and also has access to more data on how customers spend their money so it can offer better perks.

Six bills experts say you shouldn't put on autopay

Autopay has plenty of benefits, such as helping to avoid late fees and streamlining your bill paying process. But some experts say there are a few types of bills that you shouldn't autopay, especially if you're not confident you can pay these bills in full each term. The list includes utility bills and annual subscriptions. Read the full list here.

Why private credit is attractive to both businesses and investors

While investors are attracted to the high rates, private credit is particularly attractive to mid-sized businesses that are too small for bank syndication and want faster, more flexible financing options.

Payday loans typically have higher interest rates than cash advances

Cash advances and payday loans are both short-term loans that allow borrowers to access cash quickly. Payday loans are much shorter-term, often due in two weeks or by the borrower's next paycheck, and have much higher interest rates.

'Buy one, get one free' is often a clever way to get you to spend more money

One Burger King diner recently saw the price of her $2.16 sandwich rise to $3.19 per sandwich when she used a buy-one-get-one-free (or BOGO) coupon. Naturally, she became suspicious about how good a deal BOGO really is. This video explains why BOGO deals are a way for companies to get you to spend more money, rather than less.