Retailers and eCommerce brands are always looking for more innovative ways to attract and keep customers. And in the wake of recent economic challenges, this has led many to take a closer look at buy now, pay later (pay-over-time) services.
But, as you might expect, there are some issues that come with buy now, pay later solutions. In this post, we’ll take a look at two of the biggest ones.
What is Buy Now, Pay Later?
Buy now, pay later (BNPL) is a service that many retailers offer to their customers. With a BNPL program, customers can make an initial down payment on a product (usually a big-ticket item) and agree to make the rest of the payment installments over the following few months.
Unlike traditional layaway services that keep the product stored in a back room until all the installments have been paid, BNPL allows customers to walk out the door with the product once they’ve made the initial deposit.
You can think of it as a mini loan since many of these purchases are backed by banks, credit unions, or fintech providers like Sezzle, Klarna, or Affirm.
What’s the Risk to Retailers?
From fraud to staying power, there are a few risks associated with buy now, pay later solutions that retailers should be aware of before implementing.
While financial institutions will bear the brunt of any financial default and the consumer is responsible for late fees, BNPL fraud can still impact your business in two distinct ways.
In the case of account takeover fraud, where fraudsters rack up thousands of dollars in debt on behalf of your customers, your reputation and trust with shoppers are damaged. Not simply because fraudsters were able to hack the BNPL account, but because consumers will likely blame your brand (even though their financial institution or BNPL provider is likely the one at fault).
At the same time, fraudulent chargebacks can also put a dent in your financials, as cybercriminals can steal large ticket items they would ordinarily not be able to. Arguably, this is a lot less likely to affect your brand, since buy now, pay later providers are vigilant. But, there is always a risk that fraudulent activity might slip through the cracks.
Currently, buy now, pay later is on the rise. In fact, in March, the Ascent discovered that BNPL use among U.S. adults had risen by nearly 50%.¹ But this isn’t necessarily surprising, given that many American households were hit hard by the economic downturn in 2020 and the desire for instant gratification has remained.
The question is: has the service gained enough popularity to stick around after economic recovery?
In many ways, the answer is yes. Besides making expensive items more accessible to lower-income families, BNPL also provides a more convenient (almost effortless) way for people to revenge shop right now.
While adopting buy now, pay later can lead to more customers, there are some critical factors that retail and eCommerce brands need to consider before doubling down on the trend. By calculating your fraud risk and conducting your own analysis on the trend’s longevity, you’ll be able to make a confident decision for your business moving forward. Or, ask Radial’s fraud and payments experts to determine if it’s right for you.
¹ “Buy Now, Pay Later Services Continue Explosive Growth,” Ascent, July 2020