Buy Now Pay Later myth-busting


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Buy Now Pay Later myth-busting

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The popularity of Buy Now Pay Later (BNPL) has exploded over the last few years. In 2020 use of BNPL products nearly quadrupled year on year to £2.7bn , with this payment method now firmly part of the mainstream for consumers and tools like iwocaPay spearheading adoption for B2B BNPL transactions.

The speed of adoption of BNPL has meant that knowledge of how it works may not always be readily understood, so there are several myths about its use and implications that are not necessarily true.

1. It’s expensive

Some believe BNPL is expensive due to being easily accessible, with applications being quick and a high chance of approvals creating the impression that interest rates and fees are likely to be high due to limited underwriting processes.

However, in reality, BNPL can be cheap and, in some instances, free. The Pay Later option in iwocaPay allows buyers to settle the outstanding balance across three monthly installments at a representative interest rate of 1.5% per month..

Alternatively, sellers offering iwocaPay to their customers can cover this fee themselves, so there is no finance cost for their customers. iwocaPay also has no early repayment fees.

Comparatively, consumer BNPL companies tend to have the option of paying in 30 days, over three installments or via financing. The first two products don’t tend to cost consumers anything (assuming they make payments on time), with BNPL companies making money through retailers via transaction fees.

Admittedly, the financing option on consumer BNPL is relatively pricey, costing up to close to 20% APR

2. It’s a lender of last resort

There is the perception that BNPL is a lender of last resort and that borrowers only turn to this form of funding due to not being able to arrange credit facilities elsewhere.

This is fundamentally not true because BNPL has several compelling benefits for borrowers, notwithstanding that it can be a surprisingly cheap form of finance.

Many businesses and consumers choose BNPL over more traditional financing products because it is easy to understand, applications are quick and seamless, and the relatively recent (but growing trend) of merchants and businesses embedding BNPL tools within their checkouts.

As a product, BNPL is easy to understand because, upon approvals, individuals can instantly see a payment schedule, with liabilities being presented to them before checkout. This can overcome any difficulty consumers, and business owners, have with understanding terms such as APRs.

Additionally, choosing BNPL upon checkout is as seamless as paying with a credit or debit card, so many select it as an option because it provides a satisfying customer experience.

iwocaPay processes

At present, 70% of businesses who apply for iwocaPay are approved.

Credit decisions related to iwocaPay go through the same process as iwoca loans, and decisions for loans up to £25,000 are made instantly. Underwriting processes include pulling data from Companies House and analysis of personal credit information. Business owners who have defaulted on mortgages are immediately turned down, and iwoca also considers aggregated data on payments history from businesses they have lent to in the past.

3. There isn’t any regulation

In the UK, BNPL isn’t subject to regulation, but in February, the FCA announced they would be bringing in regulations to protect consumers who use BNPL products.

Planned changes include stronger protections for consumers with the cancellation of contracts, late fees and collection of continuous payments.

While these incoming regulatory changes won’t apply to B2B BNPL services, they acknowledge how mainstream this payment method has become and will help enhance its reputation, making it even more attractive.

While iwoca as an entity is FCA regulated, related protections only apply to sole trader customers making use of the standard flexi loan product.

iwocaPay isn’t FCA regulated, but iwoca works closely with customers to ensure they can service BNPL loans. In the relatively unusual instances where customers cannot make their payment reschedule, an assigned account manager works with the customer to get a new payment schedule in place to help them get back on track without being charged excessive fees.


BNPL has unfairly not always had the best treatment within the media. However, incoming regulation changes for consumer BNPL should be welcomed as they will enhance the reputation of the sector and raise more awareness.

Its ease of use, product simplicity and competitive pricing should result in further mainstream adoption.


Words by
Nick Levine
Article updated on:
February 15, 2024

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