4 Questions All Merchants Should Ask When Accepting BNPL Payments
by Ethoca
Buy Now, Pay Later (BNPL) is a fast-growing payment option that allows consumers to better manage their money by paying for purchases in installments rather than one lump-sum. It’s expected to surpass $100 billion by 2024 in the U.S., according to data from Mastercard.
BNPL is a great way for merchants to offer consumers more payment flexibility and help them more easily pay for bigger-ticket items. It can create loyalty among existing customers and expand a merchant’s potential customer base, while presenting an opportunity for the merchant to boost revenue.
And it’s growing in popularity: According to a 2021 survey, 67% of Gen Zers have used a BNPL solution, a six-fold increase over two years earlier.
How does Buy Now Pay Later work?
The merchant works with a third-party BNPL provider that handles the entire payment relationship with the customer. Generally, the first payment is due from the customer immediately, with the rest due as installments based on a predetermined agreement. However, each BNPL provider is different and new options and terms are emerging.
When considering offering customers any new way to shop and pay, merchants should consider how it will affect both their fraud operations and their customer experience—as those are becoming increasingly intertwined.
So, what are the important considerations when thinking about offering BNPL as a payment option to your customers?
Here are four important questions to ask:
1. Who is responsible for chargebacks in a BNPL purchase?
Typically, the BNPL provider assumes the full risks of the purchase transaction, including if the customer misses any installment payments or if the purchase results in a chargeback—whether due to fraud or another reason.
Merchants should make sure to ask any provider they’re considering working with how it handles disputes and chargebacks. It’s also important that the BNPL provider be transparent with customers about how any dispute or request for a refund will be handled—as the customer may assume they need to contact the merchant first.
2. How do returns work for BNPL purchases?
The BNPL return process is somewhat different than with a typical purchase. The provider usually handles both collecting the installment payments as well as issuing any refunds.
As with disputes and chargebacks, merchants should ask their BNPL provider how returns or refunds will be handled—as each provider may have a slightly different process.
For example, if someone returns merchandise, they may not be eligible to receive a refund from the BNPL provider until they have completed all of their payments. This can create a more complicated return process—and is something the merchant should fully understand and, in turn, communicate to its customers to keep them satisfied and ensure a seamless experience.
3. Are there any other risks with BNPL purchases?
As consumer payment and shopping options becomes increasingly diversified, merchants should keep in mind the potential for more transaction confusion. It’s more likely a consumer won’t recognise a transaction if it’s shown next to an unfamiliar vendor name or the total amount has been broken up into smaller payments.
Consumers often look for the merchant’s name when reviewing their transaction statement, and seeing anything other than that can lead to more purchase confusion—which is a common cause of friendly fraud.
Solutions that provide detailed purchase information in banking apps—like a clear merchant name, merchant logo, and an itemised receipt—can also clearly show when a purchase was made using a third-party payment facilitator, such as a BNPL provider, further reducing purchase confusion.
4. How can merchants protect their customer experience when offering BNPL?
Merchants should choose a BNPL provider that aligns well with their customer experience to ensure it’s the right match for their needs. While the BNPL provider assumes the payment relationship, your company’s reputation hinges on offering a BNPL solution that your customers find easy to manage and trust. Learn more about the considerations here.
The Benefits of Buy Now Pay Later
Offering your customers flexibility in how they shop and pay can provide a more positive brand experience, while offering the potential to boost your top-line revenue growth. Essentially, you’re helping current and prospective customers pay for products in a way that works for their budget.
However, no matter what mix of shopping or payment options you provide your customers, it’s important to make sure your fraud operations and customer experience strategies are designed to work together and limit both your fraud and reputational risks.
