Who pays for interest-free buy now, pay later?

Interest-free buy now, pay later, or BNPL, is purchase financing in which the consumer repays through installments without scheduled interest under the stated offer. The provider can earn revenue from a merchant charge even when the consumer’s scheduled repayments equal the purchase price.

The merchant can fund the financing service

Take a $1,200 purchase repaid through four $300 installments. Under a constructed 4% merchant charge, the provider retains $48 and the merchant receives $1,152 before other adjustments.

The customer’s scheduled payments still total $1,200. The provider’s $48 gross revenue comes from the merchant side of the transaction, not scheduled consumer interest.

That revenue must cover funding, credit and fraud losses, servicing, technology, and acquisition costs. Take $15 of funding expense, $12 of expected credit loss, $10 of operating expense, and $4 of fraud cost. The $48 charge leaves $7 before other costs and taxes. A zero consumer interest rate is compatible with provider revenue, but it does not establish provider profitability.

Merchant subsidy creates a distribution incentive

A merchant accepts the charge when the expected commercial benefit justifies it. Possible benefits include additional purchases, larger baskets, or access to customers who would otherwise abandon checkout.

The distinction is incremental sales. If a shopper would have made the same purchase through a cheaper payment method, shifting that purchase to subsidized financing adds cost without adding the sale.

The merchant therefore has an incentive to promote the financing option, while the provider has an incentive to obtain valuable checkout placement. Distribution terms can include revenue sharing, featured presentation, or exclusivity. Those terms influence which offer the customer sees before underwriting determines whether it is available.

The installment presentation changes the visible decision

Four payments of $300 and a $1,200 purchase describe the same scheduled principal obligation. Emphasizing the installment highlights the near-term cash requirement rather than the full purchase amount.

That presentation does not prove consumer harm or an increase in spending. It identifies the information that becomes prominent at the decision point. A borrower with several plans must meet their combined due dates, even when each individual installment appears small.

Merchant cost does not establish who ultimately bears it

A merchant can absorb financing charges in its margin, spread acceptance costs through retail prices, or recover them through other commercial choices where permitted. The existence of a merchant subsidy does not prove that every customer pays a higher price.

Likewise, “interest-free” does not describe every possible late charge or every product a provider sells. The specific contract determines those terms. The economic mechanism here is narrower: a seller-funded financing offer connects the provider’s revenue to sales distribution as well as borrower repayment.