Buy Now Pay Later (BNPL) System

Credit at Checkout, Installments, Refunds and a Ledger That Balances

Design a pay-in-4 lender that decides on credit during checkout, pays the merchant up front, collects the installments, handles returns and failed payments, and records every cent in a double-entry ledger.

Overview

Buy now, pay later (BNPL) splits a purchase into installments at checkout. The US Consumer Financial Protection Bureau (CFPB) describes the typical product in its 2022 market report: a $50 to $1,000 purchase split into four equal, interest-free installments, the first paid as a down payment at checkout and the other three every two weeks over six weeks. The lender pays the merchant up front and earns a merchant discount fee; if the customer does not pay, the lender carries the loss.

That makes the system a small consumer lender that works at checkout speed. It must approve or decline in about a second, pay many merchants, collect millions of small payments on schedule, handle returns (the CFPB found 13.7% of loans involved a return or dispute in 2021) and keep a record that auditors and regulators can trust.

The CFPB's figures for the five large lenders it surveyed (Affirm, Afterpay, Klarna, PayPal and Zip) show the scale and the thin margins: 180 million loans and $24.2 billion in 2021, a 73% approval rate, merchant fee revenue of 2.49% of volume against credit loss provisions of 1.30%, leaving unit margins of about 1%. Small mistakes in underwriting or collections erase that margin.

Questions to ask first

Which products? — Pay in 4 only: 25% at checkout, then three payments two weeks apart, no interest
How is the customer checked? — Fraud signals, our own repayment history, and optionally a soft credit inquiry
When is the merchant paid? — Next business day, the price minus the fee
How does the customer pay? — Autopay from a debit or credit card on file
Late fees? — None in this design; failed charges are retried, and new loans are blocked
What must be auditable? — Every money movement, as balanced ledger entries

What you will be able to do

Explain who holds the money and the risk at each point of a pay-in-4 loan, with the CFPB's market figures.
Design a checkout decision that answers in about a second: fraud first, then an exposure limit, then the down payment.
Generate exact schedules and apply partial refunds to them correctly.
Collect installments idempotently, with retries and a charge-off policy.
Keep every movement in a double-entry ledger that always balances.

Key concepts

Pay in 4
Merchant discount fee
Real-time underwriting
Soft credit inquiry
Low and grow limits
Installment schedule
Idempotent charges
Re-presentment
Refund allocation
Double-entry ledger

Functional requirements

Approve or decline a pay-in-4 loan during checkout
Charge the down payment at checkout and create the schedule
Pay each merchant the order amount minus the fee, next business day
Charge each installment on its due date from the card on file
Retry failed charges, notify the customer and block new loans while overdue
Apply merchant refunds and resolved disputes to the loan
Show customers their loans, schedules and payments
Record every money movement in a double-entry ledger

Non-functional requirements

Checkout decision under 1 second at p99, including the down payment authorization (a target we chose)
Every charge and payout exactly once, even with retries and timeouts
The ledger balances at all times: debits equal credits per entry
Loan and ledger records never updated in place; corrections are new entries
If the decision service is down, decline (and let the shopper pay another way) rather than approve blindly

Interview questions

How do you make a credit decision during checkout?
How do you handle a return after two of four payments?
Why a double-entry ledger instead of a balance column?
How do you avoid double charges when collecting installments?
What happens when a customer stops paying?
How is the merchant paid, and how do refunds affect it?
Where does fraud end and credit risk begin?