In the fast-evolving world of online commerce, how customers pay has become just as critical to a merchant’s success as what they buy. For years, credit cards dominated digital checkout, offering speed, consumer protection, and widespread acceptance. The landscape is diversifying, with short‑term instalment credit (BNPL) now significant, yet increasingly treated by European regulators as consumer credit rather than a lightweight payment feature.
While BNPL remains a relevant, regulated credit tool, the most substantive 2026 changes now come from A2A‑funded credit, bank‑fintech underwriting integration, and real‑time payment rails. These developments, not BNPL, are now driving the structural evolution of payment flows.
Alternative credit solutions from Buy Now, Pay Later (BNPL) schemes to instant credit lines powered by fintechs have already reshaped the flow of funds and continue to influence merchant strategy as the market matures.
This shift is not just a matter of replacing one payment instrument with another. It changes the entire sequence of interactions between consumers, merchants, payment service providers, lenders, and settlement systems. The payment flow diagrams that once seemed almost static: card transaction authorisation, clearing, settlement are now multiplying into a variety of alternative credit paths, each with its own operational, financial, and strategic implications.
Credit cards became prominent in e-commerce for clear reasons: a familiar consumer experience, deferred payment capability, and strong dispute resolution processes. For merchants, cards brought predictable settlement times and access to a global customer base. Yet, they also came with high interchange costs, chargeback risks, and reliance on acquirer-issuer approval decisions. As the Head of Digital Payments at a leading retailer noted:
In markets like Germany, the Netherlands and Belgium, however, online payments have long been dominated by account-to-account and invoice solutions rather than credit cards, meaning diversification predates the BNPL surge. Cards were the backbone of online payments for decades, but they’re no longer the only game in town, customers expect flexibility, and that means offering more than just Visa and Mastercard.
Cards were the backbone of online payments for decades, but they’re no longer the only game in town.
The introduction of alternative credit solutions is changing that dynamic. BNPL providers, for instance, insert themselves as both lender and payment method at checkout, assuming the credit risk while paying the merchant upfront. Virtual revolving credit lines and instant financing options, often enabled by open banking and real-time data analysis, give consumers flexible ways to split or delay payments without going through the traditional card infrastructure.
This diversification means merchants are no longer locked into a single flow model. The credit authorisation and risk decision can happen outside the card networks entirely, sometimes even before the customer reaches the final checkout page. Settlement may occur instantly from the provider to the merchant, with the financing relationship existing only between the provider and the consumer. In the EU, many of these models fall under the revised Consumer Credit Directive (CCD II), requiring proportionate affordability checks, clearer pre‑contract information and, in some markets, caps on costs, narrowing the gap with traditional regulated credit.
Merchants often observe conversion gains when BNPL is surfaced well, especially for discretionary baskets and mobile; however, effects are context‑dependent and should be measured rather than assumed. As a Chief Financial Officer in e-commerce said: “When we introduced BNPL, our checkout abandonment dropped significantly; it’s not just about payments, it’s about removing friction from the buying decision.”
Buy now, pay later is not just about payments, it’s about removing friction from the buying decision.
In an era when cart abandonment remains a persistent problem, offering more flexible credit options can remove key barriers. A customer unsure about committing to a full upfront payment might proceed if given the option to split the cost into instalments or defer it without interest.
These alternative flows often integrate directly into the merchant’s checkout process in ways that are designed to be seamless and low friction. Instead of redirecting to an external page for payment, some BNPL providers embed their offers, and eligibility checks within the same screen, delivering near-instant approvals. This minimises the risk of customer drop-off during the payment process, a risk that is still significant with traditional card transactions when authentication steps are lengthy or unclear.
For merchants, higher conversion rates can outweigh the higher fees that some alternative credit providers charge. The revenue gained from otherwise lost sales can make these flows economically attractive, particularly in sectors like fashion, electronics, and travel, where discretionary spending is sensitive to payment flexibility. Caveat: Under EU and UK rules (CCD II and the UK FCA’s Deferred Payment Credit regime), merchants may face additional friction and costs. Affordability checks and mandatory disclosures can slow down checkout and affect the customer experience. As a result, performance should be assessed through controlled A/B testing and evaluated beyond conversion rates alone, tracking metrics such as returns, refunds, disputes, and NPS.
The move to alternative credit flows also reshapes risk. As a Payments Strategy Lead explained: “BNPL shifts credit risk away from merchants, but it introduces operational complexity. You’re now dependent on the provider’s fraud models and compliance posture.”
With credit cards, the merchant is exposed to chargebacks for fraud and disputes, and while certain protections exist, these liabilities can be costly. In many BNPL and instant credit arrangements, the provider assumes the consumer credit risk and guarantees the merchant’s payment, typically within one or two business days.
If the provider’s risk models fail, the merchant may face reputational damage, operational disruptions, or even the loss of a payment partner.
However, this shift introduces a new dependency: the merchant’s reliance on the credit provider’s underwriting and fraud controls. If the provider’s risk models fail, the merchant may face reputational damage, operational disruptions, or even the loss of a payment partner. Additionally, while the provider absorbs the consumer credit risk, merchants may still face compliance obligations such as adhering to local consumer credit disclosure rules or ensuring accessibility for all customers. Heavy multi‑loan usage and higher unsecured balances among frequent BNPL users in market studies heighten reputational and conduct risk if vulnerable consumers over‑extend, making provider selection and harm‑prevention controls critical.
The payment flows for these solutions also introduce operational complexity. Settlement processes may vary widely between providers, reconciliation formats can differ, and dispute handling is often managed outside the traditional chargeback frameworks. Merchants must adapt their internal processes to accommodate this diversity without increasing administrative costs or errors.
Payment choice is increasingly linked to customer loyalty. As an online shopper shared: “When instalments are available, it helps me manage my budget, but it’s no longer the deciding factor in where I shop.” In competitive online markets, offering the right mix of payment options can be as influential as pricing or delivery speed. For certain demographics, particularly younger consumers, BNPL and flexible credit options are now an expected part of the checkout experience.
These solutions can also serve as loyalty tools in themselves. Some BNPL providers operate as consumer-facing brands, bringing their own marketing power to the merchant’s site. Co-branded promotions, targeted offers, and integrated rewards schemes can encourage repeat purchases. The flip side is that the loyalty may reside more with the payment provider than the merchant; if the customer builds a relationship with the BNPL brand, they might prioritise shopping with merchants that also offer that provider’s services. Under CCD II/UK rules, marketing and disclosure constraints further push merchants to evidence consumer outcomes (clarity, affordability, fair treatment), not just brand‑led offers; otherwise, loyalty can migrate to the BNPL brand rather than to the merchant.
Merchants can leverage the marketing reach of payment providers, but they must ensure they are not losing control of the customer relationship.
This dynamic creates both opportunity and competition. Merchants can leverage the marketing reach of payment providers, but they must ensure they are not losing control of the customer relationship. Integrating flexible credit within a broader loyalty strategy, such as offering exclusive financing terms for loyalty members, can help balance this equation.
The credit shift in e-commerce payment flows calls for strategic choices that extend beyond simply “adding BNPL at checkout.” Merchants need to evaluate:
A VP of E-Commerce emphasized: “Adding BNPL isn’t a checkbox, it’s a strategic decision, we had to rethink reconciliation, reporting, and even loyalty programs.” Some merchants are choosing to work with multiple credit providers to diversify risk and serve different customer segments. Others are negotiating customised terms or integrating white-label solutions to keep the financing offer under their own brand. In either case, understanding the full flow of funds, data, and liabilities is essential to maximising the benefits while minimising exposure. This also requires regulatory readiness checks: verify the provider’s authorisation route, affordability capabilities, data‑reporting setup, and preparedness for upcoming EU and UK deadlines: 20 November 2026 for CCD II and 15 July 2026 for the UK Deferred Payment Credit “Regulation Day”.
The shift will continue but under clearer regulatory guardrails and with higher compliance costs. Regulation, especially in the BNPL space, is expected to tighten in many markets, which could change provider economics and availability. Open banking innovations promise to streamline credit decisioning and payment initiation, making alternative flows even faster and more embedded. Real-time payments could merge with instant credit approvals, creating entirely new hybrid models that bypass both card networks and traditional lending channels. A Fintech Product Lead predicts: “The next wave will be instant credit tied to real-time payments. It will blur the lines between lending and payment initiation.”
The next wave will be instant credit tied to real-time payments. It will blur the lines between lending and payment initiation.
For merchants, the key will be adaptability. The optimal payment mix in 2026 may look very different from today’s, shaped by consumer preferences, technology advances, and regulatory frameworks. In Europe, that framework prominently includes CCD II and, in the UK, FCA’s DPC regime, with affordability, disclosures, ombudsman access and (in the UK) Section 75 protections, shifting BNPL closer to mainstream regulated credit.
What remains constant is that payment strategy is no longer a back-office consideration, it is central to the customer experience, the revenue model, and the competitive positioning of every e-commerce business.
The transformation of payment flows from a card-dominated structure to a diverse ecosystem of credit options is more than a technical evolution. It is a strategic shift that will define winners and losers in the digital marketplace. Merchants that understand and embrace this shift, balancing conversion gains with operational readiness and brand control, will be best positioned to thrive in the next phase of e-commerce growth.
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