Table of contents
As a business owner, it’s critical to ensure a hassle-free payment experience for your customers. Offering different ways to pay enables customers to choose the option that is most convenient for them.
Buy now, pay later (BNPL) is a payment method that has grown increasingly popular in recent years, with almost 5% of retailers surveyed by Square reporting an increase in this type of purchase in the previous 12 months.
The Canadian BNPL market was valued at $5.84 billion in 2023 and is expected to grow to $10.6 billion by 2029. Younger generations are leading this growth, favouring BNPL over traditional credit cards due to lower interest rates and more flexible payment terms. To accommodate this shift, small and medium-sized merchants in Canada are increasingly adopting BNPL services for their online and brick-and-mortar stores.
In this article, we explore everything Canadian retailers need to know about BNPL, from what it is to how to works as well as the benefits and risks for your business.
What is buy now, pay later?
Buy now, pay later, or BNPL, is a type of installment payment service that allows customers to make purchases either online or in-store without paying the full value upfront.
BNPL is essentially an instant credit offering at checkout. It lets consumers defer payment in full and spread their financial commitment over a more manageable timeline that fits their budget. Customers pay the remaining balance in installments over a defined period of time, usually several weeks or months, depending on the BNPL plan.
Most short-term plans are interest-free when payments are made on time, while longer-term plans may charge interest that’s set at the time of purchase.
BNPL can be used for a range of retail products and some professional services, including beauty and wellness and home repair services. In Canada, furniture and appliances account for about 39% of BNPL purchases.
How does buy now, pay later work?
A customer can choose to pay by BNPL either by selecting it at checkout at an online store or notifying an in-store employee at the point-of-sale. BNPL is primarily used as an eCommerce payment method and is significantly more popular for online purchases across Canada. While interest in in-person BNPL offerings are growing, they not yet widely available.
For online purchases, the customer selects the BNPL option at checkout and inputs details like their name, date of birth (to ensure they are over 18), address, contact details and payment card or bank details to start the verification process.
Emerging BNPL payment offerings in-store involve the customer using a BNPL mobile app to generate a one-time virtual card to make a tap and go payment at a POS or by scanning a QR code to launch a BNPL app to input their details.
Once BNPL is selected, the BNPL service provider will run a check in the background to verify the customer’s eligibility and provide a decision on whether to approve the release of funds, usually in seconds. This background check usually takes place through the BNPL app for in-store purchases, meaning the store clerk doesn’t need to perform any manual processing.
Eligibility checks usually include:
- Verifying the buyer’s identity to prevent fraud.
- Performing a soft credit check to ensure the buyer has a strong enough credit score.
- Reviewing past BNPL purchases and ensuring the buyer has a history of paying back loans.
If approved, the customer makes an initial payment — typically around 25% of the purchase price — and the remaining balance is divided into installments. The merchant immediately receives the full amount for the checkout items from the BNPL service provider, minus a processing fee at the time of the order. This processing fee depends on the BNPL provider you use. For Square merchants using Afterpay, the fee is 6% of the total order plus $0.30.
Throughout the payback process, the customer receives information about the exact amount to be paid and when they should happen. Depending on the BNPL provider used, the customer can choose to send payment manually via cheque or bank transfer or authorize automatic deductions of due payments from their bank or debit or credit card.
Why are buy now, pay later solutions on the rise with consumers?
According to the Financial Consumer Agency of Canada (FCAC), 42% of BNPL users say the payment method helps them fit purchases into their budget, while 23% use it specifically to avoid credit card interest and fees. BNPL can be particularly useful for consumers who don’t have a credit history, don’t want to use credit cards or otherwise can’t finance the entire purchase (39%).
Square’s Future of Retail research showed that 73% of retail leaders reported an increase in BNPL purchases over the previous 12 months. Millennial and Gen Z Canadians in particular are driving this adoption, accounting for nearly 80% of Pay in 4 purchase volumes and 70% of pay monthly purchase volumes in 2023. Their reasons for using BNPL are a combination of feeling that BNPL makes budgeting easier and that it’s a more convenient way to pay for items without incurring the full cost upfront.
Types of buy now, pay later plans
In Canada, BNPL generally falls into one of two categories: short-term installment plans or longer-term financing plans. Both give consumers flexibility but work in different ways.
Short-term installments (i.e. Pay-in-4)
Short-term installments is a model popularized by BNPL provider Afterpay. Under these plans, purchases are split into four equal payments that are paid back over a six-week period. These plans usually offer 0% interest but some providers do charge late fees if payments are missed. In the case of Afterpay, these late fees are capped at 25% of the original order price. Some providers might also place limits on the total purchase price, either as a blanket policy, or based on consumer credit scores and payment history.
Longer-term financing (i.e. installment loans)
Long-term financing plans act more like traditional loans and are designed primarily for higher-value purchases like furniture, electronics or professional services. These plans extend payments over much longer terms than short-term installments, sometimes as long as 60 months. Longer-term financing often carries interest rates, which can vary depending on credit score and the loan provider.
It’s important that consumers understand the terms they’re signing up for when using BNPL, including the cost of interest, payment schedule and penalties for missed or late payments. Merchants, likewise, need to understand the types of loans they offer, as this can affect the types of BNPL fees they pay, how they communicate payment terms to customers, and even their compliance obligations under Canadian consumer protection rules, like clearly disclosing fees and payment schedule terms before purchases are made.
Buy now, pay later providers
Canada’s BNPL market has several major providers offering many different plans and features. It’s important to compare both fees-per-transaction and ongoing subscription costs when considering a BNPL partner for your business.
Some of the most common options include:
- Afterpay (by Square) is integrated directly into Square’s POS ecosystem, offering interest-free Pay-in-4 plans for online purchases.
- Affirm (PayBright) provides both Pay-in-4 and longer-term financing with interest rates ranging from 0% to 32% APR.
- Klarna offers Pay-in-4 and financing options, with APRs typically ranging from 7.99% to 29.99%.
- Sezzle offers Pay-in-2 and Pay-in-4 installment plans with 0% interest.
- Canadian banks like Scotiabank (SelectPay) offers 3, 6 or 12 month installment plans starting at a 5.99% interest rate.
What are buy now, pay later apps?
Many BNPL service providers have consumer-facing apps, which allow shoppers to view upcoming installments, manage AutoPay settings and track outstanding balances.
BNPL providers may also have shop directories or marketplaces within their apps, helping customers find participating retailers and eligible products for BNPL. This offers an additional way for new customers to learn about your business.
Each BNPL provider has their own terms for listing businesses. For some, you simply opt in to their directory service after signing up. For others, you may need to provide more specific information, such as your business category, company size and service area.
BNPL benefits for consumers
For shoppers facing rising costs, BNPL offers a way to stay within budget while still making the purchases they need without having to resort to high-interest options like credit cards or payday loans. Key benefits of BNPL for consumers include:
- Easier budgeting. 42% of Canadians using BNPL say it helps them manage money by breaking larger purchases into predictable payments.
- Immediate access. Unlike layaway, customers can take products home right away while spreading payments over weeks or months.
- Low-cost financing. Pay-in-4 plans are typically 0% interest when payments are made on time, making them a cheaper alternative to carrying a balance on a credit card.
- Accessibility. Many BNPL providers only run a soft credit check, meaning more Canadians – including those with limited or no credit history – can qualify.
- Potential credit-building. Longer-term BNPL loans are increasingly reported to credit bureaus, meaning on-time payments can help to build a positive credit profile.
How does buy now, pay later affect a customer’s credit score?
Today, most short-term Pay-in-4 BNPL plans in Canada aren’t reported to credit bureaus, so on-time payments typically don’t improve scores and missed payments usually don’t hurt them directly. However, excessive applications for BNPL services across multiple providers can raise red flags. While most providers only run a soft credit check, repeated applications may still be visible to lenders and signal higher risk.
Longer-term financing plans are more likely to be reported as traditional installment loans, meaning on-time repayment behaviour positively builds credit history and missing payments can negatively impact scores.
In general, credit bureaus like TransUnion are beginning to explore ways to document more BNPL data such as incorporating BNPL accounts into credit files and risk models. And, with increased regulatory scrutiny from the Financial Consumer Agency of Canada (FCAC), more BNPL loans will likely be reported to credit bureaus over time.
Benefits of buy now, pay later for businesses
One of the biggest benefits of buy now, pay later for business owners is that you receive full payment for the product upfront. You typically only pay a transaction fee once the sale goes through. The risk of payment collection in most cases is borne by the BNPL provider so you don’t have to manage debt collection or calculate the impact on your cash flow.
Since customers get immediate access to their purchase, you also don’t need to deal with storage challenges common in layaway payment plans, where you hold products until customers complete payment.
Other benefits of BNPL include higher conversion rates, reduced cart abandonment and increased basket size. When customers have the option to spread the cost over multiple payments, they may choose to add more items to their cart. Research shows BNPL can increase purchase likelihood from 17% to 26%, with basket sizes averaging 10% larger than before adoption. According to the Square Future of Retail report, Canadian retailers say that offering BNPL has helped them reach more cost-sensitive shoppers and increased overall sales.
“We’ve seen that BNPL options typically lead to sales increasing [by] 20 to 30%, so when we learned that we could now offer Afterpay with Square Online, we were eager to implement it,” said Susan Pond, owner of Fab Finds Online, an e-commerce patio furniture and home goods marketplace headquartered in Vaughan, Ontario.
“Sometimes people are looking at high-ticket items, which they can afford, but would simply prefer to pay in manageable installments to avoid any expensive fees and credit card interest. Afterpay allows people to break their payments down, and does so without the onus being on us. This is a huge benefit to our business,” she said.
Disadvantages of buy now, pay later
While BNPL offers a host of benefits, it’s not without risks — which primarily impact your customers. Those who use BNPL to buy goods or services from businesses should be cautious of:
- Overspending: BNPL reduces the pain of paying in full, which can make the purchase feel more affordable than it is.
- Missed payments: 4.5% of Canadians reported paying a late fee due to missed installments, incurring interest or late fees on the transaction.
- Taking on too much debt: Because most providers only run a soft credit check, customers buying from your business can take on multiple installment plans across different platforms.
- Credit score impact: Longer-term BNPL loans reported to credit bureaus can hurt your customer’s credit scores if payments are missed.
The primary risk on the merchant side relates to regulatory compliance. Merchants that offer BNPL as a payment option can face fines or penalties of they are found to be in breach of consumer protection rules by not clearly communicating fees and payment schedules before purchase.
The Financial Consumer Agency of Canada is increasing its scrutiny and urging transparency among BNPL providers so consumers clearly understand the terms of BNPL plans before committing.
This includes requiring clearer disclosure of fees, interest rates, repayment schedules and penalties for missed payments, as well as making sure consumers understand the difference between interest-free Pay-in-4 installments and longer-term loans that carry interest. The FCAC has also emphasized the importance of plain-language terms and marketing when promoting BNPL services so that consumers aren’t misled.
Provided you follow these rules as a business owner, the disadvantages or risks associated with BNPL are minimal, and are far outweighed by the uptick you’re likely to see in conversion rate and order values.
Buy now, pay later merchant fees
BNPL merchant fees are often higher than credit or debit card transactions, so it’s important to factor them into overall margins and view them in context of total sales. For many sellers, the increased conversion rates, reduced cart abandonment and higher average order values driven by BNPL outweigh the additional cost per transaction.
Here’s how these merchant fees break down by different Canadian BNPL providers:
- Afterpay (Square): 6% + $0.30 per transaction.
- Affirm (PayBright) Variable, starting at 6% + $0.30, depending on financing program and business risk profile.
- Klarna: 5.99% + $0.40 per transaction.
- Sezzle: 6.1% plus $0.30 per transaction.
How to offer buy now, pay later to your customers
To start offering a buy now, pay later payment method to your eCommerce customers, you’ll need to integrate a payment platform that accepts BNPL into your website.
BNPL payments through Afterpay are fully integrated with Square Online, Square Payment Links, Virtual Terminal Payment via Text Message, Square Invoices and Square’s Web Payments SDK with no extra integration work required. Just log into your Square Dashboard and you’ll see Afterpay as a payment method that you can turn on in your account settings. There are no monthly fees or startup costs if you are already set up with Square eCommerce products, and you only pay a fee once you make a sale.
Once the BNPL payment option is up and running, customers will simply see the option to buy now, pay later during the online checkout process.
How to promote buy now, pay later to your customers
Signing up with a BNPL service provider is only the first step. The next and arguably more important step is to inform your customers about this payment option.
Promoting buy now, pay later online
- Show installment pricing early. Instead of only listing BNPL at checkout, display payment breakdowns (e.g., “4 payments of $25”) on product pages and category pages. This lowers the price barrier and encourages shoppers to add-to-cart.
- Feature BNPL alongside other payment options. Make sure BNPL is included on your payment methods page and FAQ with clear, jargon-free language about how it works.
- Promote in marketing channels. Use email, social media and homepage banners to highlight BNPL as a payment option. This is especially important ahead of major sales periods like Black Friday and Cyber Monday that can drive a significant portion of a your annual revenue.
- Use provider tools. BNPL platforms often offer promotional banners and widgets that dynamically display installment costs — an easy way to boost visibility without heavy design work.
Promoting buy now, pay later in-store
- Promote BNPL on price tags and in-store displays. For higher ticket items, show the per-installment cost, highlight the 0% payment terms if applicable.
- Take advantage of provider materials. Many BNPL providers supply materials like store decals, posters and information brochures to help with promotion and education on the service.
- Train your team. Make sure your staff know how BNPL works, including limits, payment terms and interest rates. Train them on how to help customers pay with a virtual BNPL card through Apple Pay or Google Pay and give them talking points to help explain common questions about your BNPL offering.
For both in-store and online promotions, always remember to keep your messaging informational. Avoid being pushy or pressuring consumers to buy.
Things to consider before offering BNPL payment options to your customers
While offering BNPL could help drive incremental sales and attract new customers, there are some things to consider before fully integrating it into your business’s payment offerings.
Price of your product
Some BNPL providers have a minimum order amount and the product types financed by BNPL providers also differ. Some providers cover small, everyday items while others only offer installment payments for high-ticket products. Because of this, it’s important to do your research and choose a provider that works best for your products and price range.
Payment terms for the customer
Ultimately, the goal with BNPL is to offer your customers a flexible payment option. Review the terms of the service provider to ensure they are suitable for your customers. Understanding those terms also makes it easier to educate your customers about BNPL.
Buy now, pay later regulations
BNPL is under growing scrutiny from the Financial Consumer Agency of Canada (FCAC). Regulators are focused on protecting consumers by mandating the clear disclosure of fees, interest rates and payment terms associated with BNPL transactions.
As oversight increases, BNPL providers are expected to use stronger credit assessments and standardized agreements for all transactions. For merchants, this means ensuring that any advertising or product pages clearly distinguish between 0% APR installments and interest-bearing loans to stay compliant and maintain customer trust.
Fees and charges
Though it may vary, BNPL providers will typically charge both a flat fee and a commission per sale that’s based on transaction value and volumes. Payout times also differ, usually starting at 24 hours. Be sure to compare rates and choose a payment platform that best supports your business.
Remember: Square customers have full access to Afterpay. It’s integrated with all Square online payment products, including Square Online, Square Payment Links, Square Invoices and Virtual Terminal.
Buy now, pay later FAQs
Where can buy now, pay later be used?
Buy now, pay later can be used online and in-store across Canada for purchases in sectors like fashion, beauty, home goods, electronics and professional services.
Many BNPL apps feature shop directories, making it easy to find participating businesses.
What is the maximum amount available for buy now, pay later?
The maximum amount available for buy now, pay later payment plans depends on the provider and the type of plan. Short-term Pay-in-2 or Pay-in-4 plans often have lower limits than longer-term financing plans.
Afterpay maximum spend amounts are tailored to each customer and are based on factors like their purchase history, credit score, payback record and frequency of orders made.
Does buy now, pay later hurt your credit?
Most short-term Pay-in-4 plans aren’t reported to credit bureaus in Canada, so they usually don’t affect a customer’s score directly. However, this may change given the Canadian government’s growing regulatory scrutiny of BNPL services. For now, missing payments on short-term BNPL plans will result in late fees or restricted access to BNPL services.
Longer-term BNPL loans are more likely to be reported as installment accounts. In those cases, on-time payments can help build credit history but missed payments can negatively impact your score, just like a traditional loan.
