Buy Now, Pay Later: Opportunities, Risks, and Chargeback Implications
Buy now, pay later has moved well past the novelty stage. According to the Chargebacks911 2026 Chargeback Field Report, based on survey data from more than 250 merchants, 19.1% of merchants currently accept BNPL at checkout. Klarna is the most widely supported provider among this group, used by 35% of BNPL-accepting merchants, followed by Affirm at 27%. The payment method has become a standard checkout option across retail, fashion, and consumer electronics, and adoption continues to expand into lower average order value categories.
For acquirers and processors, BNPL’s growth creates a specific challenge: the post-transaction implications are more complex than most merchants appreciate before adoption, and the dispute exposure that BNPL generates often doesn’t surface through conventional monitoring channels. Understanding how BNPL works, where its risks concentrate, and how those risks flow through payment infrastructure is increasingly important for processors managing merchant portfolios.
How BNPL Works & Why Merchants Adopt It
BNPL allows consumers to split purchases into installments, typically four payments spread over six weeks, with little or no interest charged for on-time repayment. The BNPL provider fronts the full purchase amount to the merchant at point of sale, then collects installment payments directly from the consumer. Merchants receive settlement within one to three business days, similar to standard card processing, but pay a merchant service fee typically ranging from 2% to 6% of the transaction value, which is higher than standard card interchange plus acquirer margin.
The fee premium reflects measurable commercial benefits. BNPL consistently increases average order value by 20 to 40% in retail and fashion verticals, as consumers commit to higher purchase amounts when spreading payments. Checkout conversion improves, particularly for transactions above price points where credit limit concerns might otherwise cause abandonment. BNPL also opens access to younger demographics and consumers without established credit histories who may not carry credit cards.
These benefits explain the adoption trend. However, the same structural features that make BNPL attractive from a conversion standpoint create conditions that complicate post-transaction risk management.
How BNPL Disputes Differ from Traditional Chargebacks
The most important operational distinction between BNPL and card-based payments is that BNPL disputes follow the BNPL provider’s own dispute process, not card network rules. Each provider maintains its own dispute resolution timeline, evidence requirements, and merchant liability thresholds. These vary considerably across providers and don’t map cleanly onto the familiar structures of Visa and Mastercard dispute management.
When a consumer disputes a BNPL purchase, the claim goes to the BNPL provider rather than to a card issuer. The provider investigates, requests evidence from the merchant, and makes a liability determination based on its own policies. If the dispute resolves in the consumer’s favor, the merchant typically reimburses the provider for the refunded amount and pays a per-dispute fee. Affirm’s merchant policy, for example, specifies a $15 dispute fee per resolved claim in addition to the refunded transaction amount. A pattern of disputes can result in penalties or account suspension by the BNPL provider, independent of any card network monitoring program.
A secondary chargeback risk emerges when consumers use a credit or debit card to fund their BNPL installment payments. In these cases, a consumer may dispute an installment payment with their card issuer in addition to or instead of filing a claim with the BNPL provider. This creates a situation where the same underlying transaction can generate both a BNPL provider dispute and a card network chargeback simultaneously, exposing the merchant to double liability on a single sale.
This layered dispute structure means that BNPL-related losses frequently don’t appear in a merchant’s traditional chargeback reporting. A merchant whose card-based chargeback ratio looks clean may be absorbing significant dispute losses through BNPL provider channels that never register in the data an acquirer typically monitors.
Fraud Risk Patterns Specific to BNPL
BNPL’s fraud risk profile differs from traditional card fraud in ways that matter for chargeback exposure. The reduced credit check requirements that make BNPL accessible to a broader consumer base also lower barriers for fraudulent applicants. Consumers with limited credit histories or prior fraud indicators who might be declined for a credit card can often obtain BNPL approval, creating a higher baseline fraud risk for merchants in this payment channel.
The installment structure creates specific friendly fraud dynamics. Consumers who experience buyer’s remorse after a large purchase may dispute the transaction rather than initiate a return, particularly when the return process involves more friction than a dispute. Extended repayment timelines give consumers more time to reconsider purchases and more opportunities to dispute individual installment payments. The psychological distance between the original purchase decision and later installment payments can also lead consumers to dispute charges they’ve genuinely forgotten authorizing.
The scale of this problem is not small. The Chargebacks911 2026 Chargeback Field Report finds that 40% of merchants, including those who already offer BNPL at checkout, consider the payment method to be a driver of fraud risk. Among merchants that have not adopted BNPL, elevated fraud exposure is cited as the most common reason for staying away, ahead of concerns about business model fit and average order value. That finding is significant: even merchants with direct BNPL experience view it as a fraud risk amplifier rather than a neutral payment option.
The Visibility Problem for Acquirers & Processors
The dispute visibility gap is the most operationally significant BNPL risk for acquirers and processors. Standard chargeback monitoring captures disputes that flow through card network rails. BNPL disputes that resolve entirely within the provider’s own system never appear in TC40 fraud reports, chargeback ratio calculations, or the monitoring data that acquirers use to assess merchant risk. A merchant can be accumulating substantial dispute losses and reputational damage with a BNPL provider while presenting a clean profile in conventional portfolio monitoring.
This creates a blind spot that compounds over time. Merchants who don’t track BNPL dispute volumes separately from their card-based dispute data can’t accurately assess their total dispute exposure or identify whether BNPL adoption has changed their overall risk profile. Acquirers who don’t ask about BNPL dispute experience during merchant reviews are working with an incomplete picture of their portfolio’s actual risk.
The question that processors should be asking their BNPL-accepting merchants is straightforward: what do your dispute volumes across BNPL transactions actually look like compared to your other payment methods? If a merchant cannot answer that question, they are accepting payment complexity without the visibility to manage it, and their processor is carrying risk that isn’t reflected in standard monitoring data.
Regulatory Uncertainty & Its Implications
The regulatory landscape for BNPL remains unsettled in ways that create ongoing compliance uncertainty for merchants, processors, and providers alike. In May 2024, the Consumer Financial Protection Bureau issued an interpretive rule classifying BNPL products as credit cards under Regulation Z. Under that rule, BNPL providers would have been required to offer consumers formal dispute rights comparable to those governing card transactions. In March 2025, the CFPB under new leadership announced it would revoke the interpretive rule, leaving BNPL outside the federal consumer credit framework it had briefly entered.
The revocation means that consumer dispute rights for BNPL purchases currently depend on each provider’s own policies rather than federal mandate. This creates inconsistency across providers and leaves merchants without a standardized framework for understanding what dispute obligations apply to their BNPL transactions. It also means that the dispute terms merchants agreed to when onboarding with a BNPL provider represent the primary contractual framework governing their liability, making those terms more consequential than many merchants recognize at the time of signing.
The regulatory picture diverges significantly outside the United States. In the UK, BNPL products are expected to come under Financial Conduct Authority oversight, and in the EU, the revised Consumer Credit Directive brings BNPL within its regulatory scope. Merchants and processors operating across these jurisdictions face different compliance requirements for the same payment method depending on where transactions occur.
What Acquirers & Processors Should Do
Incorporating BNPL dispute data into merchant risk monitoring requires expanding the scope of what processors track beyond card network dispute metrics. Periodic merchant reviews should include questions about BNPL adoption, the providers in use, and the dispute volumes those providers are generating. Merchants who can’t provide this data need guidance on how to capture it; merchants who have it should be evaluated against their card-based dispute benchmarks to identify whether BNPL is disproportionately driving their overall dispute exposure.
Pre-adoption guidance is more valuable than post-adoption remediation. Before a merchant adds BNPL to their checkout, processors can help them evaluate the dispute terms embedded in provider contracts, understand their liability for different dispute categories, and establish tracking systems that will give them visibility into BNPL dispute volumes from day one. Merchants who adopt BNPL without reviewing provider dispute terms often discover the liability implications only after absorbing unexpected losses.
Portfolio oversight adjustments should account for the secondary chargeback risk that arises when consumers fund BNPL installments via card. Processors whose merchants accept BNPL should flag the potential for card-based chargebacks on BNPL-funded transactions and ensure their merchants understand that a single disputed sale can generate liability through multiple channels simultaneously.
BNPL’s commercial benefits are real, and merchant adoption will continue expanding. The payment method’s dispute mechanics, fraud risk profile, and regulatory complexity are equally real, and they don’t resolve themselves through inattention. Acquirers and processors who help merchants understand these dynamics before adoption, and monitor them effectively afterward, provide measurable value that goes beyond transaction processing and positions them as informed partners in their merchants’ payment strategy decisions.
