, Retail
A furniture shop adds a buy now pay later option at checkout in March. Average order value goes from £310 to £395 within two months and the owner is convinced. In September he runs the numbers properly and finds that about two thirds of the value going through the provider is coming from customers who had bought from him before, at a fee several times what his card acquirer charges.
The uplift is real. So is the subsidy he is now paying on trade he already had.
You are paying for conversion, not for payment
A card transaction costs you a fraction of a percent plus pennies. Buy now pay later is priced in a different league, typically quoted in the low to mid single digit percentages plus a fixed amount per order, and it varies with your sector, your volume and your returns rate.
You are not paying for the payment. You are paying for three things. The provider takes the credit risk, so you are paid in full regardless of whether the customer keeps up the instalments. The provider does the underwriting at checkout in seconds, which is a real service you cannot build. And the provider brings customers through its own app and directory, which for some retailers is genuine new demand.
That last one is the part worth testing rather than assuming. If the provider is sending you customers who had never heard of you, the fee is an acquisition cost and should be compared with what you pay for a click or an impression, where it usually looks reasonable. If the provider is being chosen at your checkout by people who found you themselves, the fee is a discount on business you already had, and it should be compared with your card rate, where it looks expensive.
The way to tell the difference is to look at new customer share through the channel and at whether your total conversion and total order value moved, not just the numbers attributable to the provider. Retailers routinely see a share of card customers migrate to the more expensive method without any change in overall volume. That is the subsidy, and it grows quietly.
Basket uplift is real, and so is the composition behind it
Customers do spend more when they can split the cost. That is not controversial and it is why the offer exists.
Where it comes from matters. An uplift driven by people buying a better version of what they came for is good business, because you keep the margin on the upgrade. An uplift driven by people adding a second and third item they were unsure about is worse business, because that is exactly the stock that comes back.
Returns are where the economics of this get uncomfortable. Try-before-you-buy models, which are common in clothing, deliberately move the decision to after delivery, and the return rate reflects it. You pay the merchant fee, you pay outbound and often inbound shipping, you pay handling, and you get goods back that may not be sellable at full price. A 3% order that returns at 45% is not a 3% cost.
Check exactly how refunds work in your contract. The refund normally goes back through the provider, who adjusts the customer's plan, which means your usual refund process at the till or in your warehouse system has to know that this order is different. Whether the merchant fee is refunded on a returned order varies by provider and is a specific question with a specific answer. Partial returns on a split order are the fiddly case, and the one your staff will get wrong.
The regulation is arriving
For most of the period this sector has existed in Britain, interest-free instalment lending has sat outside Financial Conduct Authority regulation through an exemption for certain deferred payment agreements in the Regulated Activities Order. The Woolard Review in February 2021 recommended bringing it into regulation, and successive governments agreed.
The Government has legislated to bring interest-free buy now pay later lending under FCA regulation, with the regime expected to take effect during 2026. It is a moving target and the detail matters, so check the current position with the FCA rather than relying on any summary, including this one.
What that means for you as a retailer, in outline. You are not the lender, but when you promote credit at your checkout or in your marketing you are close to a financial promotion, and regulated financial promotions have to be approved by an authorised person and must be fair, clear and not misleading. Retailers who introduce customers to a lender may need to consider credit broking permissions or rely on an exemption. Providers will be carrying out affordability checks and reporting to credit reference agencies, which will reduce approval rates, and a reduced approval rate at your checkout is a conversion change you will feel.
Section 75 of the Consumer Credit Act 1974 makes a credit card provider jointly liable with the retailer for breach of contract or misrepresentation on purchases between £100 and £30,000. Extending comparable protections to regulated buy now pay later has been part of the policy debate, and if it lands, a dissatisfied customer gains a route to a refund that does not involve you agreeing to it.
How to decide whether to keep it
Treat it as a channel with a cost to serve, the way you would treat a marketplace.
Run it for a defined period and measure four things: total conversion rate before and after, average order value by payment method, the proportion of provider transactions from customers new to you, and the returns rate by payment method. Then calculate the contribution per order through each method after the fee, the shipping and the returns cost. It is common to find that the provider orders carry a higher revenue figure and a lower contribution.
If it earns its place, you can shape it. Setting a minimum order value keeps it off low margin transactions. Restricting it to categories with low return rates protects you from the worst case. Presenting it as one option among several, rather than the default, reduces migration from card. And negotiating the rate is possible once you have volume, which nobody does because the contract arrived as a standard rate card.
If it does not earn its place, removing it is a real decision with a real cost in lost sales. Test it in one category before you switch the whole thing off.
Where this shows up in the game
Shops are part of Business Baron's full game, and e-commerce is one of the free game's five business types. A decision about how customers pay rarely moves only one number, and a change that improves the figure you look at first can worsen the one you look at last. A cost that comes off the top lands in the month it lands, whatever the takings looked like.