At-purchase off-card BNPL: How it works and why it appeals to PSPs

Blog
Declan Kinsella

The buy now pay later (BNPL) market has seen remarkable expansion, with a valuation of USD $25.5 billion in 2022 and projections to reach USD$160.7 billion by 2032, as reported by Spherical Insights & Consulting. Over the years, various BNPL models have emerged, each tailored to different needs. Among these, the at-purchase off-card BNPL model stands out. But what is this model exactly? How does it operate, and why is it particularly attractive to payment service providers (PSPs)?

Understanding the appeal of at-purchase off-card BNPL

At-purchase off-card BNPL enables customers to utilise BNPL services at merchant checkouts – in-app, online or instore without needing a physical card. As this model is typically financed by the BNPL provider, either through their lending facility or underwritten by a third-party lender, customers make repayments directly to the BNPL provider.

This model is typically offered in two ways:

  • Direct-to-consumer: Customers create an account with the BNPL provider and use the provider’s branded payment method at merchants.
  • White-labelled: Merchants create their own branded BNPL offering, with the PSP acting as the technology supplier. This ensures a seamless customer journey, as they interact only with the merchant’s brand.

The benefits of this model are clear. PSPs like Klarna, with over 150 million active users and 14 times more users than any other BNPL service, demonstrate the model’s scalability and potential for widespread adoption.

How at-purchase off-card BNPL works

Here’s a closer look at what a typical payment using this model involves:

  1. Initial purchase: The customer adds items to their shopping cart (physical or e-commerce) and chooses to use the BNPL payment method at the checkout
  2. Account set-up and approval: If it’s the customer's first time using BNPL with this provider, they create an account and the BNPL provider conducts a credit check to assess the customer’s eligibility
  3. Choosing an instalment plan: After approval, the customer selects an instalment plan tailored to their preferences. This can typically be done either during the checkout process or shortly after via the BNPL provider’s platform. Options may include various terms such as pay later, pay in 3, pay in 6, or pay in 12 months, each with different interest rates and fees depending on the provider's offerings
  4. Transaction completion: Once the instalment plan is confirmed, the BNPL provider reimburses the merchant for the full purchase amount. The customer's repayment cycle begins according to the chosen plan, with payments made directly to the BNPL provider at regular intervals
  5. Returning customers: For subsequent purchases, returning customers simply log into their existing BNPL account and select their preferred instalment plan

Throughout the entire process, customers have the flexibility to manage their repayment schedules and monitor their transactions through the BNPL provider’s user-friendly interface.

At-purchase off-card BNPL is just one of many innovative models transforming the BNPL landscape. Its seamless integration with merchant e-checkouts and POS terminals, combined with the convenience it offers customers, makes it an attractive option for PSPs looking to expand their services. However, this is only one piece of the puzzle. Numerous other BNPL models exist, each offering unique benefits tailored to different business needs. To explore these options and determine the best fit for your business, be sure to check out our ultimate guide to BNPL.

Other blogs in this series: Card-linked BNPL | Merchant-funded BNPL | Post-purchase off-card BNPL

Recent