• Tue. Jun 11th, 2024

Implications of the new ‘buy now, pay later’ rule for small businesses providing the service

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Jun 11, 2024

“Buy now, pay later” services have become popular among shoppers as they offer the convenience of spreading out payments for purchases over several weeks or months. These payment plans are often marketed as zero-interest or low interest, making them appealing to consumers. For small businesses, offering these services can be a benefit as it attracts more customers. However, the services are offered by third-party companies like Affirm and Klarna, which can pose risks for businesses.

If something were to go wrong with a “buy now, pay later” transaction, customers may blame the small business even if they are not directly involved in the payment plan. According to a report from the Consumer Financial Protection Bureau, more than 13% of such transactions involve disputed charges or returns. In 2021, consumers disputed or returned $1.8 billion in transactions at five major “buy now, pay later” companies, highlighting the potential risks involved.

In addition to customer dissatisfaction, these payment plans also cost small businesses money, typically charging a 1% to 3% fee on each transaction. This can be burdensome for businesses with tight profit margins. However, the Consumer Financial Protection Bureau recently issued a new rule that aims to protect consumers using “buy now, pay later” services. The rule requires these companies to provide consumers with the same legal rights and protections as credit card lenders, including the ability to dispute charges, easily obtain refunds for returned items, and receive billing statements.

Overall, while “buy now, pay later” services can benefit small businesses by attracting more customers, there are potential risks and costs associated with offering these services. With the new rule in place, businesses can have greater confidence in providing these payment options to customers while ensuring that they are protected under the law.

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