“Buy now, pay later” services are popular among consumers and can help small businesses make more sales. Now, a recent rule issued by the Consumer Financial Protection Bureau offers more protections for consumers who use these services and, thus, more clarity for small businesses.
The services in question are usually marketed as zero- or low-interest payment plans that allow customers to pay off large purchases over a few weeks or months. There are several third-party companies, like Affirm and Klarna, that allow small businesses to easily offer this option to shoppers.
The benefit for businesses is the improved buying power for customers; they don’t need to wait until they have all the money in their account to complete a purchase. But there are also downsides. For example, if a customer experiences a technical glitch or is unhappy with how the payment service operates, the small business may get blamed. Additionally, small businesses often pay a 1 to 3 percent fee for these transactions, making them similar to credit card transaction fees.
But until recently, these companies did not have to adhere to the same consumer protection rules as credit card companies. Despite about 13 percent of BNPL charges being returned or disputed, service providers were not required to provide protections like refunds or billing statements.
The CFPB is changing that now, interpreting a rule stating that these services are subject to the same consumer protection standards as credit card companies. This doesn’t mean that small businesses using such services have to change any of their specific processes. But the third-party providers are now required to meet these standards.
What this means is a more predictable experience for consumers. And since shoppers are likely to connect their experience with a BNPL provider to that of the small business they’ve bought from, the change could lead to improved reputations and customer loyalty.
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