Why merchants need to re-evaluate Buy Now, Pay Later in 2026

Meera Navale, Associate Economist at CMSPI, explores the evolution of Buy Now, Pay Later and how merchants should approach it in 2026.

Buy Now, Pay Later (BNPL) has become a familiar part of checkout experiences worldwide. Yet, the model that exists today differs significantly from the BNPL many merchants encountered several years ago. Adoption continues to grow, but so do underlying complexities: virtual-card rails are increasingly common, underwriting practices are evolving, and regulatory attention is expanding across major markets.  

BNPL still offers value, particularly in customer flexibility and potential conversion improvements, but the ecosystem supporting these outcomes has become more intricate. As approval performance, fraud behaviour, and operational workload become increasingly difficult to navigate, understanding BNPL’s true impact is becoming increasingly important as merchants expand globally and refine their acceptance strategies.

This article considers how BNPL is evolving, the implications for merchant performance, and the four areas where these shifts are most visible.

The evolution of BNPL

Although BNPL is often referred to as a single payment method, the category has broadened significantly.

On the credit side, today’s ecosystem includes everything, from short-term pay-in-four products to longer-term instalment loans. On the acceptance side, providers support direct BNPL integrations and virtual-card solutions that rely on traditional card networks. BNPL providers can now issue physical cards, be integrated with popular digital wallets, and are exploring new forms of digital value transfer, such as blockchain-based settlement.

All this is part of a continuing trend towards providers offering more ‘full-service’ financial products rather than operating simply as instalment platforms.

Despite the increasing role of cards in facilitating BNPL transactions, CMSPI’s State of the Industry Report still finds that, for many merchants, BNPL is the most expensive payment method, with average estimated fees around 2.77%. Structural factors, such as high credit losses, relatively low consumer fees compared to credit cards, and potential marketing spend, also help explain why BNPL fees sit at the upper end of the acceptance-cost spectrum. These underlying economics make it essential for merchants to craft a holistic BNPL strategy that balances optimal costs with local conversion trends.

Virtual cards and approval variability

For BNPL acceptance, approval performance remains a challenging aspect. For customers transacting with merchants who do not have a direct integration, the provider issues a one-time-use virtual card, and the consumer manually enters their details at checkout. This creates opportunities for simple input errors like mistyped PANs, expiration dates, or incorrect amounts, which can lead to declines in otherwise good customers.

These BINs can resemble non-standard card types, and processors do not always flag them as BNPL-linked. As such, today, a merchant may not realise they are accepting BNPL products. Network averages may look stable even when specific BNPL BIN ranges perform significantly worse, making BIN-level performance monitoring critical for identifying the true drivers behind BNPL declines.

Operational realities: fraud, refunds, and workload

Even when merchants are not financially liable for BNPL fraud, they still experience its downstream effects. Providers absorbing higher fraud losses may tighten underwriting standards, indirectly reducing approval rates. Fraud involving BNPL-funded virtual cards can still generate disputes or customer contacts, increasing administrative burden.

BNPL refunds also introduce meaningful operational considerations. They require coordination between the merchant, the provider, and the issuer, which extends resolution times and adds complexity relative to standard card refunds. As BNPL volumes scale, these operational frictions become more visible and require dedicated oversight, reinforcing the value of transaction-level data in evaluating BNPL performance, including fraud patterns, refund timelines, dispute volumes, and approval behaviour.

A regulatory landscape that continues to shift

BNPL’s growth has prompted regulators to reevaluate how the method fits into existing credit frameworks. In the EU, the updated Consumer Credit Directive now brings BNPL under broader consumer protection requirements. In the US, the CFPB’s 2024 determination classifies BNPL companies as credit card providers, introducing expectations around dispute handling, transparency, and consumer safeguards. Late or missed BNPL payments may now be reported to credit bureaus, and scoring models are beginning to incorporate BNPL repayment behaviour. Australia’s reforms have moved BNPL operators into the consumer-credit regime, and the UK continues to explore enhanced affordability standards.

These shifts are significant, as they may affect both customers’ incentives to adopt BNPL and merchants’ compliance burdens, making it crucial for any merchant to stay up to date on how the latest policy developments impact their strategies.

Looking ahead: precision over assumption

Merchants evaluating BNPL in 2025 benefit from a more precise approach – understanding provider models in detail, monitoring BIN-level approval behaviour, aligning acceptance with local expectations, and incorporating regulatory developments into long-term payment strategy.

Central to any optimised strategy is transaction-level data, which enables merchants to pinpoint operational inefficiencies and craft negotiation strategies grounded in actual performance rather than assumptions. For merchants employing this, BNPL can further contribute meaningfully to global payments performance in 2026.

About the author

Meera Navale is an Associate Economist at CMSPI, where she delivers data-driven insights that inform smarter payments decisions for leading global merchants. Her specialisms include analysing trends in local and alternative payment methods, regulatory impacts, and competitive network dynamics across international markets.

 

 

About CMSPI

CMSPI is a global payments advisory that helps the world’s leading merchants optimise their payments strategy. We combine expert consulting, market visibility, and proprietary analytics to uncover hidden inefficiencies, deliver high-impact savings, drive sales growth, and develop world-class payment strategies.