The Rise Of PayPal Buy Now, Pay Later And How To Reduce Frauds And Disputes

April 18, 2023

The Rise Of PayPal Buy Now, Pay Later And How To Reduce Frauds And Disputes

The pandemic has shaped the way people shop and make payments. The growth of online shopping and e-commerce platforms has created a significant opportunity for players of BNPL (Buy Now Pay Later).

The growth of the BNPL market is also credited to growing digital infrastructure and the acceptance of digital payments. According to CNBC reports, the BNPL sector is now a $100 billion global industry.

One survey also found that 16% of those aged 18 to 34 regularly use BNPL. This makes it very clear how the payment option has attracted a large number of younger customers.

Even though it appears to be a win-win scenario where consumers don't have to pay the full amount upfront, and retailers offer the ease of paying in installments without incurring any financial risk, it's not always like that.

The entire "Pay Later" option might occasionally result in disputes and fraud against your online business.

We'll talk more about this in detail in this blog and how, as an online business, you can safeguard and protect yourself in this situation.

Let's get started!

What is Buy Now Pay Later?

Buy Now Pay Later is a payment facility where you allow customers to make purchases now and pay for it at a later time, i.e., 15, 30, or 45 days.

The BNPL providers pay the merchant immediately on behalf of the customer once the order is processed.

According to 45% of respondents in a poll by The Financial Brand in 2022, the simplicity of making payments with BNPL over other options makes it more appealing.

Why is the BNPL (Buy Now Pay Later) option growing in popularity?

According to a Credit Karma report, 44 percent of Americans utilized BNPL services in 2021, up from 42 percent the year before.

The payment method is very popular among the younger demographic as they don't qualify for credit cards with lower interest rates and don't want to apply for high-interest rates. Hence BNPL gives them an option to make payments.

The clarity of fees or interest rates is the main driver of its rising popularity.

According to a survey conducted in September 2020, "clarity of fees or interest rates" was the top reason for using BNPL by nearly half of those polled (41.8%).

37.2% of customers that use BNPL also cite "ease of the option" as a reason for using it.

While you need to give out a lot of information and go through several steps of authentication to sign up for a credit card, BNPL offers instant and simpler access to credit.

Many customers who couldn't otherwise afford to make substantial purchases or were reluctant to use credit cards can now spread out their payments, thanks to BNPL services.

What is Buy Now Pay Later on PayPal?

The PayPal Buy Now Pay Later option allows merchants to offer customers the option to pay in installments over time. Customers can therefore purchase what they want today and pay for it later.

Customers can choose to pay in four interest-free, biweekly installments, or they can convert their payments into 6, 12, or 24-month payment plans, all without incurring late fees.

Once the order is processed, the merchant receives the full payment, and PayPal handles the billing. As 74% of customers are inclined to shop at a merchant again if they offer a buy now, pay later option, this also helps increase sales.

Why should you offer Buy Now Pay Later?

Think of a situation where your customer is browsing through your online store and loves your products. But then they realize they are on a budget and their paycheck is a month away. They may abandon your site or add products to their "wishlist" to purchase later.

Offering a Buy Now Pay Later option is one way for you, the merchant, to solve this problem. As a PayPal merchant, you should provide customers with a Buy Now Pay Later option for the reasons below.

1. Increased Sales

Although more and more customers are making purchases online, BNPL can help you enhance high-value product transactions by 25%.

A buyer might be persuaded to purchase an item costing Rs. 10,000 if they can pay for it in 5 separate installments of Rs. 2000 each.

It certainly sounds like a great deal.

Additionally, it's important to draw customers' attention to the various payment alternatives on the product page. Customers are more likely to purchase when they know they can postpone making the payment until later.

2. Boost AOV (Average Order Value)

ZestMoney reported in 2021 that brands offering BNPL experienced a 160% rise in AOV.

When buyers need to make instant payments, the chance that they will purchase more in a single transaction is relatively low. However, BNPL gives consumers a choice to purchase more and pay for it later. As a result, your AOV (Average Order Value) and profits increase subsequently.

3. Reduced financial risk

Merchants often avoid BNPL services because they think that by offering a "Pay Later" option, they will have to wait for the money and face more credit defaults. However, it's hardly the ideal situation.

If you're a merchant and you provide PayPal's pay later option, you'll receive payment in full once the order is filled, and PayPal will be responsible for any unpaid customers. It is a win-win situation where you lower your risk while giving customers a lucrative payment option.

4. Improved customer loyalty

At the point of purchase, giving customers financial flexibility encourages them to become brand ambassadors and fosters long-lasting relationships. Customers have every reason to stay and not look for better deals at other brands, thanks to the option of "Buy Now Pay Later."

This improves the chance of repeat sales and boosts customer lifetime value for you.

Offering customers payment flexibility enhances their shopping experience, lowering your cart abandonment rate and boosting customer loyalty.

5. Attract new customers

If a large percentage of your online customer base is young, remember that they are risk-averse. Their post-purchase anxiety is further increased by using credit cards to make purchases and paying high-interest rates. They'll probably want to avoid this. Here, BNPL steps in to offer them a more suitable payment option.

Customers can purchase goods right away, make payments when it's convenient for them, and do so while still maintaining a solid credit score. What else might draw them in?

Attract new customers by offering lower entry barriers for consumers and giving them flexibility when making purchases using BNPL services.

6. Increased conversion rate

BNPL makes shopping simplified and more affordable for customers. Thus this helps you convert customers in situations where you wouldn't typically be able to.

Not only this, but you also gain an advantage over your competitors by implementing BNPL quickly and effectively.

Although achieving these advantages primarily depends on the BNPL terms offered by the third-party provider and your online business processes, integrating BNPL almost eliminates friction in the payment process resulting in quick conversion.

What are some drawbacks of Buy Now Pay Later?

The BNPL option may seem like the best option for an online merchant, but it's not all unicorns and rainbows like any other financing option.

After looking at the more positive sides of the BNPL option, let's examine its less-discussed disadvantages.

1. Higher chances of chargebacks, disputes and fraud

In a BNPL transaction, the provider immediately pays you when the order is processed, and the customer pays the provider subsequently. However, in case of a dispute or chargeback, the BNPL providers can charge you instead.

This is probably the case when customers complain about the delivery or product quality.

Because they don't have to pay anything right away, customers are more likely to make impulsive purchases. However, when it comes to payment, they might discover that they've bought something they truly can't afford and request a refund.

Some consumers might argue that they never received the merchandise even if they did, which would constitute a fraudulent transaction. The BNPL providers may hold your payment in any of these scenarios and release it later or not at all.

2. High merchant fees

The shocking news is that customers and merchants must pay fees to BNPL players, contrary to what you may have believed. In reality, BNPL providers charge higher fees (2–6% of the transaction value) than traditional methods.

3. Integration challenges

While nothing stops you from offering your own in-house BNPL option during checkout, integration can be complicated. The requirement for new tools and technology may further increase your cost.

It’s the reason that most merchants choose to contract third-party providers who can help them manage payment options.

4. Accreditation challenges

The difficulty with the BNPL option doesn't just stop with integration; it also extends to access. Not all businesses can use this payment method. Businesses must meet certain criteria to be eligible for this payment option. Additionally, this funding option is unavailable to several companies, including cigarette and casino companies.

5. Difficult to select the right payment provider

Given the number of BNPL payment providers available, it might be difficult for you to choose the best one. Each provider offers a different "Buy Now Pay Later" service.

Hence it is important to understand the BNPL provider's terms and conditions and to evaluate their prices to select the most cost-effective and effective package for your business.

Any problem in a BNLP system has a significant impact on your credibility.

How to reduce frauds with the buy now, pay later?

BNPL is a relatively new payment option compared to other forms of payment. While it has many advantages for you and your customers, that doesn't mean nobody can misuse it.

Like every other payment method, the chances of BNPL fraud are high. Thus you should take the following steps to prevent it.

1. Verify customer address and details

What if you offer customers the option to pay later only to find out that the information they provided was false? Because of this, there is a possibility that the payment provider will put your money on hold, and your online store will lose credibility.

So, once the order is placed, you should double-check the customer's address and other information to prevent this. You can do this by sending an automated message.

For instance, you might use WhatsApp to ask customers to confirm their orders or send them emails with the order confirmation.

2. Offer order tracking to customers

Customers today expect instant delivery. Any delay in the product can frustrate them and contribute to post-purchase anxiety. They might raise a dispute or a chargeback with the payment provider.

Thus to avoid this, you should keep customers updated about their order status.

At the same time, you should also sync it to your inventory management to know where the order is.

If you expect any delay in the delivery, communicate it to customers immediately.

3. Confirm order delivery status

Sometimes customers also engage in friendly fraud. Merchants report 28% rise in friendly fraud over last three years.

It's a situation where customers might claim that they never received a product even if they did. Hence, you should always confirm order delivery status as an online merchant.

Customers can be asked to share an OTP or to sign while receiving an order as a confirmation. If the consumer later brings up a dispute, this could be used as evidence.

4. Sync order details with PayPal

You must sync order details with PayPal instantly after the customer makes the payment using PayPal.

As a result, customers can quickly check the status of their orders. Additionally, there is a strong likelihood that PayPal will put your money on hold if you don't sync order details. You should instantly sync order details to PayPal to avoid all of this.

However, most retailers say manually inputting order details to PayPal is difficult given that they get thousands of orders daily.

The TrackiPal app offers a solution for that. Simply integrate the app with your PayPal account, and it will immediately sync your order details to PayPal. Tadda!

FAQ (Frequently Asked Questions) about PayPal’s BNPL

What is the Buy Now, Pay Later feature of PayPal?

A PayPal option allows customers to spread out payments for purchases. When you, as a merchant, offer Pay Later, your consumers can select a payment plan that works for them by using Pay in 4 or Pay Monthly.

How do I set up PayPal Pay Later on my website?

The first step is to create a PayPal Business account. It's simple to upgrade or create a new Business account if you now have a Personal account.
Setup PayPal checkout for your business. This allows your customers to pay later automatically. Make sure you've updated to the most recent version of PayPal Checkout if you already have it.

You can set up dynamic messaging to display Pay Later promotional offers on your website once you have PayPal Checkout and Pay Later.

What is the cost of Pay Later?

Pay Later is a free added feature of PayPal Checkout. When customers pay using Pay Later, you will be charged a regular PayPal Payments transaction fee.

When will I receive payment as a PayPal merchant?

As soon as the order is processed, you are paid in full.PayPal will take care of bills, so you don't have to.

Does PayPal Pay Later impact the credit score of my customers?

PayPal Pay performs a soft credit check in four; although it will show up on the customer's credit record, it has no impact on the customer's credit score. In addition, PayPal Credit runs a hard inquiry, which may affect the borrowers' credit estimates on their credit reports.

It’s time to offer BNPL payment option while lowering your risk

BNPL lending is anticipated to be $74 billion in 2022. And that amount is projected to rise to $114 billion in 2024, an increase of $30 billion. The statistic makes it obvious how the option is growing in popularity with customers and why you should likewise give your customers the choice of BNPL.

However, offering the PayPal Pay Later option has its own advantages and disadvantages. So before introducing it to your online store, it's important to pay great attention to all the above mentioned points.

Chargebacks and frauds are the main risks associated with the PayPal buy now, pay later option. The simplest way to prevent them is to sync order details to PayPal in real-time.

This will allow customers to track their order details quickly and serves as evidence for you in case of a dispute.

With the TrackiPal app, you can now focus on other important areas of your business while automating the process of syncing order details to PayPal in real-time.

Are you ready to get started?

Click here to learn more about the TrackiPal app and sign up for a free 3-day trial.