BNPL merchant fees get passed to all U.S. consumers through higher prices, regardless of whether they use the financing, according to a report by Protect Borrowers, a consumer-debt advocacy group formed in 2018 by former CFPB officials.
Fees on BNPL purchases can run as high as 3x what a credit card transaction would cost, and 10x what a debit card transaction runs, and those transaction fees are a big way the BNPL companies make money. How else would they when offering zero-interest installment loans on purchases? The merchant pays for the privilege of offering that highly converting payment type, the tradeoff being more closed sales.
The report states:
“The costs borne by merchants for BNPL partnerships are ultimately passed onto all Americans, regardless of whether or not they use BNPL, through higher prices. These costs may only increase as BNPL adoption becomes more widespread among sellers and more deeply ingrained in the payments ecosystem.”
A few other points of interest from the report include:
- In 2024, merchant fees were 57% of Klarna’s revenue, 36% of Affirm’s, and 32% of Sezzle’s. The rest typically comes from interest, interchange fees, late fees, and membership subscriptions.
- 58% of small businesses and over 40% of online retailers now accept BNPL.
- BNPL lenders earn interchange from merchants who never signed a partnership, because customers pay with one-time Visa cards, hybrid debit cards, or digital wallet integrations. A merchant who deliberately declined BNPL is still paying into the ecosystem and has no idea.
- Affirm and Klarna both have OpenAI and Google partnerships. PayPal has OpenAI, Google, and Perplexity. The report’s worry is that embedding financing into chatbots invites users to disclose financial data to a system that also hallucinates loan terms.
- Walmart, Kroger, Instacart, DoorDash, Amazon, and Target all have BNPL partnerships, and the report notes they collectively hold 84% of the online grocery market. Meanwhile 46% of BNPL users have financed groceries.
The only problem with the report claiming that BNPL raises prices across the board: it’s based on observation, not data.
Trade groups including the American Fintech Council and Financial Technology Association dismissed the claims as unsubstantiated opinions, and Protect Borrowers’ own executive director conceded it had no transaction data to build its case and relied on superficial observation.
I’ve long made the argument that BNPL raises prices for everyone, but never had the stats to back it. I’ve only had the anecdotal evidence working with merchants to know that they’re definitely baking BNPL fees into the cost of doing business. As it turns out, I still don’t have the stats to back it, as this new report doesn’t offer any either.
However, Visa and Mastercard have long defended that their interchange fees don’t get passed on to consumers, but countless studies have proven otherwise as credit and debit card adoption increased over the past few decades. I’d imagine it’s only a matter of time before similar information is discovered about BNPL.
The problem is — BNPL fees, inflation, tariffs, corporate greed — who can tell anymore what’s specifically contributing to prices rising? With or without BNPL, they seem to be going up and up and up either way.
