Three Flavors of BNPL

As is the case with every financial services product, BNPL will not be a winner take all market. Apple’s moves, together with Amazon/Affirm, will help establish the momentum behind BNPL as a viable credit alternative.

Not all BNPL products are the same in fact, there are 3 “flavors”:  

  1. Consumer. A card like product that runs on V/MA/Amex networks. Build on either MA/V Installment platforms or on Visa Direct/Mastercard Send. Key here is that there is no merchant integration required. 
  2. Merchant. Affirm, Afterpay and Klarna operate primarily in this space. Deep merchant integration. Integration of pricing and financing in product price/promotion strategy (ex Peleton). Negotiated merchant MDR and no interchange fees. 
  3. Hybrid. As BNPL providers attempt to retain customers they are launching direct-to-consumer products. Affirm’s Debit+ is an example. Here merchants pay only debit interchange and ride network rails.

Consumer BNPL

Apple Pay Later and all products base on network settlement platforms are in this category. They operate as a credit card product with a issuer and BIN. This is important because of the network’s “accept all card” rules. It is important to note that these products will cost merchants the same as a credit card. In Apple’s case the ~220bps of interchange is important, as it is the primary revenue in a $0 fee and $0 interest model. Consumers must apply for this product and it will be seen by credit bureaus. More here in my previous 3 blogs on Apple Pay Later

Merchant BNPL

Merchant BNPL is the dominant solution currently. Klarna, Afterpay and Affirm all began in this model by providing merchants control over pricing, terms and the consumer value proposition. I tend to think of Merchant BNPL as a new form of merchant credit on a common platform. What merchants want most in payments is NOT the elimination of credit card interchange, but rather control of a price promotion strategy. BNPL provides it. In my January blog How will BNPL Evolve I outlined how BNPL was driving incremental sales with every participating merchant. Reduced costs and improved conversion firmly placed BNPL as the #1 merchant priority.  I also outlined the consumer and merchant value propositions within 3 scenarios (including the categories above). 

Merchants have enormous power in steering customers (see blog). For example, in eCommerce BNPL solutions like Affirm offer special financing on the product page (not checkout).  Amazon’s partnership with Affirm is perhaps the best example of ability to steer. Consumers that pay with a debit card or Affirm will save Amazon the cost of accepting credit cards, and potentially also benefit the consumer with better financing terms. 

Quite simply, merchant BNPL products have a merchant value proposition with proven incremental sales, and consumer BNPL products have no merchant value proposition or proof points


I covered this in detail within my Nov ‘21 Affirm Debit+ blog. While Merchant BNPL products have stronger value proposition(s), they have a key constraint to growth: merchant adoption. Not only do merchants need to technically integrate to BNPL providers (Stripe makes that easy), they must integrate financial terms and marketing into specific price promotion strategies. In an attempt to resolve the merchant integration problem, BNPL providers are using placing their products on network debit rails with a “decouple debit”. 

Key Features

  • Instant account opening
  • Instant credit line, pay on your terms
  • Link Any Bank (or all your banks)
  • Ubiquitous Acceptance – Pay with Debit+ in store or on line
  • Finance anything you buy before or after the purchase
  • Use Debit card in eCommerce with enhanced consumer protections and real time notifications
  • Reduced acceptance costs for merchants 
  • Debit rewards?

This would also enable you as a consumer to finance a purchase after the fact. Perhaps even create your own custom terms (pay in 24 months). 


    • First off.. BNPL is a tremendous win for V/MA. While the merchant model may seem to undercut them, over 90% of payments are made via debit card. 
    • Apple Pay Later will likely impact credit card volumes and help to establish the viability/awareness of the overall BNPL market. 
    • The BNPL market is evolving quickly, and there may be substantial consumer confusion between the different value propositions.  For example, as an Apple Card holder, how would I understand the difference between an Apple Card and Apple Pay Later? Do I really need both? I get cash back on my Apple Card.. would I get in Pay Later? Additionally expect all large banks to launch a BNPL product(s) on the installment platform(s) with a value proposition akin to “keep your points and pay as you want to pay”.  The challenge of course is competing with Apple’s $0 fees and 0% financing. 
    • Amazon and Affirm will likely drive 70% of new US BNPL volume this year. Amazon’s consumer adoption will also drive Affirm’s debit+ product growth and build merchant support for tighter integration to reduce interchange expenses.  
    • BNPL will lead to much greater consumer awareness over the cost of credit and the cost of credit acceptance making it the #1 threat to bank issuers. 
    • Expect issuers to aggressively defend their market position by launching competing products and working to impair competitors.

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5 thoughts on “Three Flavors of BNPL

  1. I was under the impression that merchant BNPL does charge a merchant discount; a premium one to support the cost of financing 0% loan balances.

  2. Hey Tom! I’m a new subscriber (and new to the space!) and I don’t understand this line:

    “What merchants want most in payments is the elimination of credit card interchange. BNPL provides it.”

    Why would merchants prefer BNPL over credit card interchange? BNPL’s MDR is ~6% and credit card interchange is ~3%. Can you elaborate?

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