Buy now pay later—or BNPL—is very popular with both merchants and consumers.

Every payment system in the world struggles with issues like fraud, chargebacks, and customer satisfaction. On that score, BNPL is in good company.  At issue is the fact that BNPL does proffer a complex series of issues that are unique to the platform itself.

In June, The Guardian reported that one-third of BNPL users in the UK said they were unable to make payments for a purchase they’d made. This is a troubling matter; some would argue that BNPL options create perverse incentives, leading people to spend beyond their means and end up getting into debt.

When magnified to scale, the broader implications of such concerns could lay the groundwork for a potential credit crisis.

BNPL Remains a Popular Option

Despite the problems outlined above, data from the 2022 Chargeback Field Report shows that BNPL is still hot among consumers and merchants. Interest shows no real signs of slowing. Thus, it’s best to figure out the right way of adapting to a post-BNPL market.

The UK government and the Financial Conduct Authority (FCA) were making moves to subject BNPL lenders to greater regulation. This may be a good start, but ultimately, the key to the success—or failure—of BNPL will depend on how risk factors like consumer behavior, fraud, and other pitfalls are managed.

Any alternative payment platform will present its own series of challenges; BNPL is no different. To implement wisely, retailers must proceed with caution…and with a plan.

Being aware of the drawbacks associated with BNPL provides the opportunity to craft and refine an actionable mitigation strategy in advance of implementation. Encouraging consumers to shop responsibly isn’t merely the realm of the finance company. Merchants have a responsibility here, as well.

Implement BNPL Wisely

Much of the onus for a positive BNPL experience rests with the merchants that employ the method. That’s why they must deploy best practices to ensure responsible and proper use. For instance, retailers should:

Communicate Clearly

The buyer should have a full understanding of the final costs, payment amounts, and terms before completing checkout.

This does more than ensure responsible BNPL use. It also communicates to customers that they are shopping with an ethical and responsible brand and never leaves them guessing about terms and conditions.

Avoid Financing for Low-Ticket Products

BNPL has been known to encourage customers to spend outside of their means. To combat this, merchants can set restrictions on item financing to prevent the customer from overreliance and exceeding budgetary concerns.

While many BNPL companies already do this, merchants can take it a step further by limiting carts in advance of financing, or setting stricter limits for the kinds of purchases that can swiftly add up.

Provide a Financing Calculator

Encouraging smart money habits is another tactic that can be setup in advance of customer checkout. Keeping a running tally of the projected monthly payment, alongside the customer’s shopping cart, can be immensely helpful for consumers and merchants alike.

This way, the customer is left with zero illusions about the purchases they are making, how much they will cost to finance, and how often those payments will be processed.

Partner with Reputable Brands

Most merchants wouldn’t be likely to partner with a BNPL brand that prioritizes net totals over customer affordability. Regardless, this point is still worth mentioning.

If a company approves absolutely everyone, and promotes large-scale purchases without much equity, that should be seen as a sign of suspicious lending practices. It may be time to search for a more reputable partnership.

Set your own Reminders and Incentives

A merchant’s responsibility to their customers doesn’t halt at the BNPL approval stage. Merchants may take the time to offer reminders and incentives for BNPL customers and consider this an opportunity to better connect with that customer base.

In any case, increased merchant involvement in the payment process might be the right tack to take. How that pans out depends on the merchant, the finance company, and lastly, any incoming governmental regulations.

The Bottom Line

Ultimately, the key to BNPL’s success—or failure—will be how risk factors like consumer behavior, fraud, and other pitfalls are managed. Although BNPL is likely on the fast track to increased governmental regulation, retailers should be taking it upon themselves to encourage responsible BNPL use.

After all, merchants stand to profit from BNPL’s outstanding growth as well. Meaning they, too, bear much of the responsibility for any credit emergencies that arise from its use.

To find out more about Chargebacks911 and the services they provide to the retail industry, click here.

This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.

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