The buy-now-pay-later scheme is not without risks, but not anything merchants may not be able to handle. The currently popular instalment payment scheme offers flexible terms and relatively low to even interest fees. Many BNPL services do not require consumers to submit their credit card histories or bank records.
But this instant gratification could backfire on merchants and BNPL service providers without warning and in the absence of a ready solution to potential problems. According to The Global Payments Report by Worldpay, the BNPL trend is expected to grow even larger in the future – as high as 37 percent in the UK alone. This expansion aligns with digitisation in the fintech industry that is expected to breed more technological innovations.
Merchants should be aware that most of the risks are usually sustained by BNPL providers. While merchants receive full payment upfront, providers are responsible for the repayment process. However, it is only normal for merchants to anticipate potential risks before choosing a provider or stepping into the world of BNPL.
False consumer data
With simple instalments as its most beneficial feature, BNPL could attract hit-and-run consumers or people with bad credit histories. It is very easy for a new consumer to submit a false phone number or a drop-off address different from their own, and then stop paying for the purchase. What merchants can do, is to select providers using third-party systems or performing automatic checks to validate the consumers' data. The consumers' names should match their listed addresses and phone numbers.
This is achievable by asking them to provide pictures of their identification cards and a matching one-time picture. A one-time-passwords can also be used in online payments to validate consumers' phone numbers or email addresses.
Chargebacks are unavoidable in the retail world, as it works similarly to refunds. But the difference lies in the matter of consumers getting their money back directly from the banks instead of the merchants. This could be very damaging to the financial ecosystem in the hands of opportunist consumers who falsely claim not to have received a product or claiming a mismatched delivery.
According to Chargeback 911, this could be handled by checking the consumers' behaviour first. Most of the time, these accounts have unusual patterns of buying and chargeback requests, high transaction velocity of small purchases, suspicious addresses, and unfamiliar devices that are not commonly used.
In another case, these fraud chargebacks could also be the result of identity theft. When the actual user of the payment data has no idea about this issue, providers can reach out to the actual owner by using other listed contacts. In a fortunate case, victims of identity theft might realize the issues first and report the matter to prevent any further transactions.
One of the best solutions is for providers and merchants to provide clear terms and solutions regarding chargebacks so consumers could not request these without valid reasons. Merchants and providers should be able to communicate on established terms that will protect both parties, while still providing a secure and comfortable payment experience for consumers.