Buy Now, Pay Later at the Point of Sale: What Merchants Should Know

How a BNPL transaction actually flows

At checkout, the customer chooses a BNPL option instead of paying in full. The BNPL provider runs its own approval check (separate from your card processor), and if approved, pays you the sale amount, minus its merchant fee, usually within one to two business days — similar timing to card settlement. The provider then collects instalments from the customer on its own schedule, commonly four payments every two weeks, or a longer monthly plan for larger purchases. You are paid once, up front; everything that happens after that, including missed instalments, is between the provider and the customer, not you. That is the structural difference from a store credit account you'd run yourself: the credit risk sits with the BNPL provider, not with you.

What it costs you vs. a card

BNPL merchant fees are charged as a percentage of the sale, and in the market generally run noticeably higher than a typical interchange-plus card rate, sometimes several times higher, because the provider is underwriting an unsecured short-term loan and marketing the option on your behalf. Some providers also offer a lower fee in exchange for a higher published price or a rate tied to your average order value and the number of instalments offered. There is no card-network interchange schedule for BNPL because it is not processed over the Visa, Mastercard, Amex or Discover rails, so you cannot compare a BNPL quote to a published interchange rate the way you can for a credit card; you can only compare BNPL providers to each other and to your card processing effective rate side by side on the same basket of sales.

Why BNPL is not regulated like a credit card right now

A credit card purchase carries Truth in Lending Act protections and Regulation Z billing-dispute rights that are well established. BNPL loans, because many are structured as short-term, often fee-free instalment loans rather than open-end revolving credit, have not automatically carried the same protections. In 2024 the CFPB issued an interpretive rule stating that BNPL providers using digital user accounts should be treated similarly to credit card issuers for billing-dispute and refund purposes. In May 2025 the Bureau withdrew that interpretive rule, stating it would not prioritize enforcement built on it, and a legislative fix, the Buy Now Pay Later Consumer Protection Act of 2026, was introduced in the House in June 2026 but had not been enacted as of this writing. Practically, this means the dispute and refund rights customers assume they have with 'plastic' are not guaranteed to apply the same way to a BNPL loan today, and that gap is worth knowing before you promote BNPL as a payment option, especially for return-heavy categories like apparel and furniture.

What happens with returns and refunds

Because the BNPL provider, not you, is the lender, a return does not automatically cancel the customer's instalment obligations the way a card refund reverses a charge. Most BNPL providers have their own return/refund process: you refund the provider (not the customer directly), and the provider adjusts or cancels the customer's remaining instalments. Ask each BNPL provider you evaluate exactly how a full or partial return is handled, how long it takes, and what happens if the customer has already paid instalments beyond the refunded amount — this is the most common source of checkout-counter confusion once BNPL is live.

Chargebacks and disputes under BNPL

A BNPL purchase does not carry card network chargeback rights, because no card network processed it. Instead, disputes are handled under the BNPL provider's own policies and whatever consumer-protection law currently applies to that structure of loan, which, per the section above, is less settled nationally than card chargeback rules. Ask providers directly how they handle a customer dispute over goods not received or not as described, and keep your own delivery and service records just as carefully as you would for a card sale, since you may be asked to provide evidence to the BNPL provider rather than through a card network's dispute portal.

Questions to ask a BNPL provider before you sign

Get the merchant fee in writing as a percentage of sale and ask whether it varies by order size, instalment plan length or customer credit profile. Ask for the settlement timing (how many days from sale to deposit) and whether it is guaranteed or can be delayed for 'review.' Ask exactly how refunds and partial refunds are processed, including timing. Ask what happens to your payout if a customer disputes or claims fraud, and whether that amount can be clawed back from you after you've already been paid, which is a meaningfully different risk profile from a straightforward card chargeback. Finally, ask whether the provider requires exclusivity or minimum volume, and get the full fee schedule, not just the headline rate, the same way you would for a card processing quote.

Does offering BNPL change your card processing contract?

No — BNPL runs alongside your existing card acceptance, not through it. It is typically added as a separate payment method in your point-of-sale or e-commerce checkout, with its own agreement and its own settlement. It does not change your interchange-plus or flat-rate card pricing, and it should not be bundled into a card processing quote as if it were a card program, because the fee structure, the dispute process and the regulatory coverage are all different.