Business
How SMEs can use BNPL to compete with larger businesses this key shopping season
Published by Jessica Weisman-Pitts
Posted on December 2, 2022
5 min readLast updated: February 3, 2026
Global Banking & Finance Review®
Company
Published by Jessica Weisman-Pitts
Posted on December 2, 2022
5 min readLast updated: February 3, 2026
By Niamh Cunningham, Senior Manager, Finance and Strategy, International, Square
SMEs like all businesses have faced continuous challenges in recent years. With the disruption caused by the mini-budget and government instability, there is an undeniable growing anxiety within the market. As the country enters the holiday season, what can SMEs do to boost their sales during these uncertain and economically turbulent times?
One way would be by investing into Buy Now, Pay Later (BNPL), which exploded into the consciousness of online shoppers about ten years ago. While most people (98%) use debit cards to make regular purchases, large transactions are now increasingly made via BNPL by customers. Compared to credit cards, this provides both customers and businesses with a number of significant benefits.
There’s several reasons why retailers should think about adopting BNPL to make their SME’s financial offering more attractive, giving consumers new options to pay at a pace that suits their budget.
BNPL – why it’s a great way to sell products to customers now
The microcredit financing method, BNPL, allows customers to pay just a small portion of the entire cost in exchange for a good or service. BNPL service providers pay the merchant directly on behalf of the consumer and cover all charges at the time of payment or shortly thereafter. Customers orders are then split into four interest-free payments over the course of six weeks.
On the surface, this can seem like a pretty sweet deal to all parties involved. The customer can buy a new pair of shoes for a down payment four times less than the marked price, perfect for someone who wants to make the most of a sale but can’t wait until payday. The merchant is happy because the item sells, but not only for this reason.
Inflation, a potential recession, and a waning consumer demand for expensive items are the headwinds facing BNPL, but there are also powerful tailwinds that will support BNPL payments and small businesses in the short term. This includes strong consumer balance sheets, despite inflation. Consistency in BNPL use so far this year was from blockbuster sales from major retailers this summer, and the appeal of low- to zero-interest payments as credit card interest rates increased. .
Buy Now Pay Later services increase retail conversion rates by 20% to 30%, meaning more people are purchasing what used to sit dormant in their ‘basket’. Sales through BNPL are also larger than without, lifting the average ticket size between 30% and 50% – great news for SMEs at this time.
Getting set up with BNPL ahead of Black Friday
This microcredit financing option is not only a sweet deal for consumers but for retailers as well! SMEs can turn to offerings including Klarna or Clearpay, where payment services are enabled from a third-party dashboard. As soon as a BNPL solution is activated from your service provider through contactless and chip services; your system will be set up so your consumers may pay for in-person goods or services.
Square’s research outlined that the number of weekly transactions using Clearpay has more than doubled for retailers since the end of August. The average Clearpay x Square transaction was about £97in September. This is more than 4x the average transaction size for orders using other payment methods.
BNPL has emerged as a reliable trend this year with 4 in 10 consumers indicating consumers plan to use the short-term financing option for holiday gifts, and it’s very likely this BNPL takeover will continue into this year’s Christmas period.
Nearly half of those aged 25 to 34 chose to delay payments with interest-free, short-term BNPL, at least occasionally, according to a Bain & Company survey – making it an incredibly reliable source for Gen-Z and millennials for the upcoming shopping period!
Competing with large businesses
It is estimated that 15 million adults of all ages in the UK were actively using BNPL products at the end of 2021, an increase of more than two million since the start of the year. The proliferation of new products on the market – driven in part by the capabilities of modern core banking-as-a-service (BaaS) providers – indicates that the rate of use will continue to increase in the coming years.
The appeal to consumers is clear – compared to conventional forms of credit, split payment solutions can provide greater flexibility to the user, as they can pick a repayment plan that suits them best. BPNL also offers an additional level of transparency by showing monthly costs and overall interest at the point of sale, and many providers offer financing with zero interest on shorter-term lending.
BNPL has indeed become one of the most popular forms of credit among consumers and retailers. While uptake has been stronger among younger demographics, the overall user base of these innovative new products has grown astonishingly quickly. SMEs who are able to grab this opportunity, whilst competing with large established businesses, can have a chance to attract and grow their customer base, both of which will be critical in the coming months ahead.
Buy Now, Pay Later (BNPL) is a payment option that allows consumers to purchase items and pay for them in installments, often interest-free, over a specified period.
BNPL can increase conversion rates and average order sizes for retailers, making their offerings more attractive to consumers who prefer flexible payment options.
While BNPL offers flexibility, it can lead to overspending and potential debt accumulation if consumers do not manage their payments responsibly.
The conversion rate is the percentage of visitors to a retail site who complete a purchase, often improved by offering flexible payment options like BNPL.
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