Buy now, pay later (BNPL) services have become increasingly popular over the past several years, especially during the uncertainty surrounding the pandemic. Essentially, these services allow customers to make interest-free installment payments on a purchase over a set amount of time.

According to a recent survey, 60% of respondents have used a BNPL service over the course of the pandemic. The number of BNPL users is now projected to hit 59.3 million in 2022. As flexible and easy as these options are to qualify for, there is a downside to their use. New risks continue to emerge as these offerings grow.

In fact, the same study found that 66% of respondents say they consider using BNPL services to be “financially risky”. This is due to various reasons, but two of the most notable are (1) they cause people to spend more than they have, and (2) these offerings may blur the traditional lines of banking and commerce.

Embedded Commerce

This new study by the Consumer Financial Protection Bureau (CFPB) dives deeper into the dramatic shifts BNPL offerings have made in the payments industry. Most notably, the integration of the payment transaction, which allows transactions to happen” automatically” with no required input from the consumer. For example, it enables shopping to take place directly on a social media feed rather than a retailer’s own site.

The biggest advantage and intent of this shift is this kind of “frictionless” transaction. It has already swept through ecommerce platforms, from one-click checkouts and in-app purchases to social media feed purchases. Even so, they do come with a level of risk.

Embedded commerce may make it easier for consumers to be defrauded by illegitimate merchants. It can also cause them to unintentionally commit to a subscription that results in ongoing payments. These services can also give the impression that items are less expensive than they are.

Monetization of Consumer Data

One of the biggest risks and concerns is the monetization of consumer financial data, according to the report. Each time a consumer makes a purchase, their financial data can be captured, retained and transmitted to benefit those in the payment ecosystem (card issuers, merchants, networks, processors, etc.).

This path of digital behaviors consumers leave behind can easily be converted into a pool of information about their lives and choices that help companies. For example, social media companies often leverage this valuable information to provide their users with an even richer experience. In short, more data equals more opportunities.

How to Keep Consumer Data Safe

“Consumers may be unaware of the full extent a company or service provider might use or share their data,” the report explains. “In some cases, the challenge of understanding how and where their data is used can lead to feelings of powerlessness and “digital resignation” among consumers, defined as “the condition produced when people desire to control the information digital entities have about them but feel unable to do so.”

As BNPL services continue to grow rapidly, it’s safe to say things in the payments industry will continue to shift as well. For now, the best way for merchants to protect their business and consumer data is to partner with the right payment processing provider. The provider you choose should have years of experience, understand the opportunities and challenges of BNPL services, what these tools and services have to offer (e.g. pinwheel apps), and have a solid plan for how they can ensure your consumers are protected.

Content crafter Alex Wilmont has been active in the payments industry for over 15 years. He lives simply, gives generously and loves his 2 dogs. His mission is to enhance and innovate the fintech industry for years to come.

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