Is Buy Now Pay Later good for retailers?

Since the model took off in 2019 and 2021, Buy Now Pay Later (BNPL) has become a standard payment method for online shopping. During the checkout process for most big retailers, consumers now see BNPL providers such as Klarna and Clearpay as an option, and its role continues to expand across more than just the retail sector.

A 2026 Finder survey found that 54% of UK adults, roughly 29.9 million people, have used BNPL at some point, up from an estimated 19.1 million at the start of 2023. Market forecasts expect the UK sector to more than double again, from US $48.56bn in 2026 to around $106.45bn by 2031.

This scale has been generated by behavioural change in consumer habits. Removing the upfront payment takes away friction at the checkout, which raises conversion and average order values.

However, it’s not all beneficial, the BNPL model has also increased return rates, and concerns around affordability and consumer harm have led to it being brought under Financial Conduct Authority (FCA) regulation as a credit product.

For most retailers, the question is no longer whether to offer BNPL, but whether BNPL is delivering profitable growth.

Why BNPL changes the way people spend

BNPL works because it lowers the psychological barrier of paying upfront. Splitting a purchase into instalments makes the same price feel manageable, even when disposable income has not changed. Shoppers also report feeling more in control of their budget, because they decide when the money leaves their account.

The effect on demand is measurable. Research by PYMNTS Intelligence, in collaboration with PayPal, found that 43% of consumers abandon a purchase when BNPL is not available. Where flexible payment is missing, many of the rest trade down to a cheaper option rather than leaving entirely.

For retailers, that translates into higher conversion, larger baskets and repeat customers, which is why BNPL has moved from a fashion checkout feature to a standard payment option across most discretionary categories.

These benefits do come at cost. Providers charge the retailer a fee on each BNPL transaction, which is typically higher than card fees. In return, the retailer is paid in full upfront and the provider carries the collection risk, which supports cash flow. For high-ticket categories, that trade has generally been worth making.

Which retail sectors benefit most?

BNPL performs best where spending is discretionary and the ticket price is high enough for instalments to make a difference. Fashion, electronics and home goods remain the core categories.

The more interesting shift is category spread. BNPL is no longer confined to traditional retail: close to four in ten consumers say the model’s availability influences where they order food delivery and where they book travel. Providers are positioning instalments as a general budgeting tool rather than a shopping incentive, which widens the addressable market and increases the competitive pressure on retailers that do not offer it.

Where the risks sit for retailers

While the upside is clear, there are strategic considerations that retailers must understand:

Cost per transaction: Merchant fees sit above card fees and have been under upward pressure as provider funding costs have risen.
Return rates: BNPL orders are returned more often than card orders, which is dealt with in more detail below.
Brand association: Late fees, collection contact and disputes are handled by the provider, but the customer attributes the experience to the retailer.
Provider dependency: Displaying multiple providers adds cost and complexity. Large sellers, including ASOS and JD Sports, have consolidated providers or renegotiated fee structures in response.

What FCA regulation means for retailers

BNPL plans have historically sat outside mainstream credit files, meaning a customer could hold several at once, and owe more than any single lender could see. That exposure is concentrated amongst younger users, around 60% of whom, aged 18 to 20, hold between two and five plans at a time.

In order to further protect consumers, and gain control over a growing platform, BNPL is now treated as a regulated credit product. From 15 July 2026, third-party lenders must be FCA-authorised, run proportionate affordability checks on every purchase rather than only at account opening, give clear information about repayment terms, and support customers who fall behind. Consumers also gain Section 75 protection on qualifying purchases and access to the Financial Ombudsman Service.

These new regulations have two important consequences for retailers. Firstly, affordability checks add friction to the checkout process, so approval and completion rates are likely to drop from what they previously were, impacting both sales and return rates.

There is also a scope question. BNPL grew quickly, and many businesses still treat it as a simple payment option rather than a regulated credit product. That assumption is now much riskier. Businesses that offer payment plans directly, rather than through a third-party lender, should look carefully at whether their arrangements bring them into scope.

For a more detailed look at the regulatory position, customer affordability checks and what retailers should review in their own BNPL arrangements, read our related blog: What the new FCA BNPL rules mean for retailers.

The returns problem

The clearest operational cost of BNPL is returns: when no money leaves the account at the point of purchase, ordering three sizes and keeping one carries little perceived risk. That behaviour is rational for the shopper, but for retailers, it can be costly:

Higher return volumes increase pressure on warehousing and logistics teams.
Restocking, quality checking and refund administration add labour cost.
Cash flow is disrupted where returned stock cannot be resold quickly or is seasonal.
Duplicate shipping and packaging increase waste and complicate sustainability reporting.

The pressure is starting to ease, but only because retailers have intervened. The ZigZag UK returns benchmark 2025, produced with Retail Economics, found the overall non-food returns rate falling from 21% to 19.5% as charges and tighter policies changed behaviour. In fact, only 24 of the 100 retailers studied still offer completely free returns.

Approaches vary in how far the retailer will go. For instance, brands including PrettyLittleThing, H&M and Boohoo have introduced returns charges. Others, such as Next, monitor high-frequency returners and restrict order volumes in the most extreme cases. ASOS has gone further, introducing a personal return rate tool that shows shoppers how often they send items back, with a fee applied to customers who consistently return more than 70% of their order value.

The common thread is targeted intervention. Retailers are using their own order data to change behaviour at the individual customer level, applying controls without withdrawing convenience from the majority, and being explicit about the rules so the change reads as policy rather than penalty.

So, is BNPL good for retailers?

The answer to this question depends entirely on what you measure. BNPL reliably increases conversion and basket size, but it equally increases return rates, costs more per transaction than card payments and sits inside a regulated framework that now adds more friction at the point of sale.

If judged on gross sales, BNPL performs well, if judged on contribution after fees, returns and fulfilment cost, the answer will vary by category and by customer type. However, few retailers are measuring it this way.

For now, four questions are worth working through:

How do BNPL orders perform as a separate cohort, measured on conversion, average order value, return rate and net margin against card orders?
What effect do affordability checks have on approval and completion rates in your categories?
How many providers do you display, where does BNPL appear in the journey, and how is it described in promotional messaging?
Would returns controls targeted at your highest-return categories work better than a single policy across the range?

BNPL is a commercial arrangement with credit characteristics, not a checkout feature. Retailers that treat it that way, with clear objectives, active monitoring and full visibility of cost, are better placed to benefit from the model without carrying risk they have not priced in.

If you would like to review how BNPL affects margin, cash flow or your position under the current rules, speak with a member of our Retail & Hospitality team today using the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information on this page is intended as a general guide only. While we work to keep our content accurate and up to date, we cannot guarantee that it reflects the position at the time you are reading it. No responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm. For more information on our editorial process, click here.

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