Reviewed by Mayer Hyman, Payments Specialist | Reviewed for accuracy July 2026
Key Takeaways
- First-party fraud, cardholders disputing legitimate purchases, now accounts for 36% of all reported fraud globally, up from just 15% two years earlier (LexisNexis Risk Solutions, 2025 Cybercrime Report).
- BNPL disputes route through a three-party structure, consumer, BNPL provider, and merchant, that creates liability confusion traditional card disputes don’t have.
- The CFPB rescinded its rule that would have required BNPL providers to handle disputes like credit card issuers, leaving BNPL dispute rights inconsistent and merchant-dependent (Federal Register, May 2025).
- Even when a BNPL provider absorbs the initial chargeback, merchants are typically on the hook to reimburse the provider plus a dispute fee if the case resolves against them.
- Pre-dispute alert tools like Verifi and Ethoca can intercept a meaningful share of BNPL-related disputes before they escalate into full chargebacks.
Why BNPL Disputes Are a Different Economic Problem Than BNPL Fraud
Buy now, pay later has become a checkout fixture, and with it, a distinct category of dispute risk that has little to do with stolen identities or account takeovers. That fraud typology, synthetic identities and hijacked accounts, is real and growing, and we cover it in depth in a companion piece, “Merchants Are Attracting Holiday Shoppers With the Gift of Buy Now, Pay Later. But These Schemes Are a Gift for Fraudsters Too”. This article is about something else: the economics of BNPL chargebacks themselves, who pays when a legitimate-looking BNPL purchase turns into a dispute, why buyer’s remorse increasingly gets filed as “fraud,” and what tools actually move the needle on cost.
The distinction matters because the fix for each problem is different. Fraud typology is a detection and verification problem. Dispute economics is a liability, process, and tooling problem, and it’s the one hitting merchant P&Ls the hardest right now.
The Merchant Liability Problem: Who Actually Pays for a BNPL Dispute?
The BNPL provider, not the card network, is typically the merchant of record for the installment loan, which means it absorbs the first dispute, but the merchant often ends up paying anyway. With a standard credit card transaction, the dispute chain is well understood: cardholder, issuing bank, card network, merchant’s acquiring bank. Everyone knows the rules, and Visa and Mastercard have decades of chargeback reason codes and arbitration processes to fall back on.
BNPL breaks that chain. The BNPL provider, not the card network, is typically the merchant of record for the installment loan, which means the provider absorbs the first dispute. But that isn’t the end of the story for the merchant. If a customer disputes a BNPL-financed purchase and the case resolves in the customer’s favor, most BNPL providers turn around and bill the merchant for the refunded amount, often with an added dispute fee on top. The merchant is still expected to produce proof of delivery, tracking information, and communication records, exactly the evidence burden of a normal chargeback, just routed through an extra intermediary with its own contract terms.
That three-party structure creates real ambiguity. Consumer protections under Regulation Z were written for revolving credit cards, not the short-term, closed-end installment loans BNPL providers issue. In 2024, the Consumer Financial Protection Bureau tried to close that gap with an interpretive rule requiring BNPL providers to handle disputes the way credit card issuers do. In 2025, the CFPB reversed course and rescinded the rule, concluding it applied “ill-fitting open-end credit regulations to BNPL products” that are structured as closed-end loans (Federal Register, May 2025). The practical result: BNPL dispute rights and procedures now vary by provider, and merchants who assumed a uniform, card-network-style process are finding out otherwise, usually after a dispute is already in progress.
Friendly Fraud, BNPL’s Favorite Disguise
Friendly fraud, a cardholder disputing a purchase they actually made and received, isn’t new. What’s changed is its scale and its relationship to installment financing. First-party fraud, the umbrella category that includes friendly fraud, now represents 36% of all reported fraud globally, up from just 15% two years prior (LexisNexis Risk Solutions, 2025 Cybercrime Report). It has overtaken third-party scams as the single largest fraud category tracked in the report.
BNPL is a particularly good habitat for this behavior. A purchase split into four installments feels smaller and less “real” at the moment of commitment, which is part of BNPL’s appeal, but it also means a buyer who regrets the purchase, can’t afford the next installment, or simply changes their mind has an easy out: dispute the charge as unauthorized or “item not as described” rather than admit buyer’s remorse or contact the merchant to negotiate a return. Framing a regretted purchase as fraud is faster than negotiating a refund, and for a shopper juggling several BNPL installment plans at once, a disputed charge is one less bill due next week.
Industry chargeback data backs this up directionally: friendly fraud has been identified as the leading driver of chargebacks overall, with nearly half of merchants surveyed estimating it accounts for half or more of the disputes they receive (Chargebacks911, 2024 Chargeback Field Report). BNPL doesn’t create friendly fraud, but its installment structure, its lighter-touch checkout, and its appeal to budget-conscious shoppers make it a magnet for this specific dispute pattern.
What Buyer’s-Remorse-as-Fraud Costs a Merchant
The direct chargeback fee is the visible cost, but it’s rarely the biggest one. A disputed BNPL transaction typically costs a merchant:
- The original merchandise, if it isn’t recovered
- The BNPL provider’s dispute or reimbursement fee, on top of the refunded amount
- Processing and gateway fees that aren’t refunded even when the sale is reversed
- Staff time spent compiling delivery evidence and correspondence for the case
- A rising chargeback ratio, which can trigger higher processing rates or network monitoring programs if it climbs too far
Layered together, that’s why industry estimates put the all-in cost of a chargeback at roughly $3.75 to $4.60 for every $1 of the disputed transaction once fees, overhead, and lost merchandise are counted (Chargeflow, 2025). For a merchant running BNPL at checkout with even a modest dispute rate, that multiplier adds up fast against the incremental revenue BNPL is supposed to generate.
Dispute-Resolution Tooling: Verifi, Ethoca, and Getting Ahead of the Chargeback
The most effective lever merchants have isn’t fighting disputes after the fact, it’s intercepting them before they become chargebacks at all. Visa’s Verifi and Mastercard’s Ethoca both operate on the same basic principle: when a cardholder contacts their bank about a transaction, the merchant gets an alert before the dispute is formally filed as a chargeback.
That early window matters because it changes the economics entirely. Instead of paying a chargeback fee, absorbing the full transaction reversal, and potentially a separate BNPL provider dispute fee, a merchant who catches the alert can refund the customer directly, cancel an unshipped order, or resolve the underlying complaint, all at a fraction of the cost of a full chargeback. These alert networks are also case-agnostic: they don’t care whether the underlying charge ran through a card, a wallet, or a BNPL installment plan, which makes them one of the few tools that work across a merchant’s full BNPL and card mix without separate integrations per provider.
Rapid Dispute Resolution (RDR) and Consumer Dispute Resolution Network (CDRN)-style automated resolution programs take this a step further by letting merchants pre-authorize automatic refunds for disputes under a certain dollar threshold or matching specific criteria, closing the loop without any manual review at all. For a merchant with high BNPL volume and a predictable pattern of small-dollar, buyer’s-remorse-style disputes, that kind of automated rule can eliminate a meaningful share of chargeback fee exposure before it’s incurred.
Building a BNPL-Specific Dispute Playbook
Because BNPL disputes route through an extra party with its own fee schedule and evidence requirements, a generic chargeback response process usually isn’t enough. Merchants offering BNPL at checkout should:
- Read each BNPL provider’s merchant agreement closely for dispute fee amounts and reimbursement terms, they vary by provider
- Keep delivery confirmation, tracking, and customer communication logs organized and retrievable, since BNPL providers request the same evidence a card network would
- Layer in pre-dispute alert tools so a share of BNPL-related complaints get resolved before they hit the formal dispute stage
- Track chargeback ratios separately for BNPL versus card transactions to see whether a specific provider’s customer base is driving disproportionate dispute volume
- Set clear, visible return and cancellation policies at the point of BNPL checkout, since ambiguity about how to cancel an installment plan is a common trigger for disputes filed as fraud instead of as a return request
Bottom Line: BNPL’s Revenue Upside Has a Dispute-Cost Downside
BNPL isn’t going away, and for many merchants it genuinely increases average order value and conversion. But the dispute economics are distinct enough from standard card chargebacks that treating them identically leaves money on the table, or worse, exposure that shows up months later as a reimbursement bill from a BNPL provider. Merchants who separate their BNPL dispute handling from their general chargeback process, and who pair that with pre-dispute alert tools, put themselves in a materially better position than those relying on a one-size-fits-all chargeback playbook.
Cartis Payments works with merchants to integrate chargeback alert tools and dispute management directly alongside payment processing, so BNPL’s checkout upside doesn’t get eaten by dispute fees on the back end. Get in touch to see how a unified approach to BNPL disputes and card chargebacks fits into your existing payment stack.
FAQ
Who is liable when a customer disputes a BNPL-financed purchase?
The BNPL provider is usually the merchant of record and absorbs the initial dispute, but if the case resolves in the customer’s favor, most providers bill the merchant for the refunded amount plus a dispute fee. The merchant is still expected to supply delivery and communication evidence, just as with a standard card chargeback.
Is BNPL friendly fraud legally different from BNPL fraud?
Yes. Friendly fraud is a legitimate cardholder disputing a purchase they actually authorized and received, often reframed as “unauthorized” or “not as described” to get a fast refund. It’s a dispute-behavior and cost problem. Synthetic identity and account takeover fraud involve criminal use of stolen or fabricated identity data and are a detection and verification problem, covered in our companion article on BNPL fraud typology.
Do BNPL purchases have the same dispute rights as credit cards?
Not necessarily. A 2024 CFPB rule would have required BNPL providers to handle disputes the way credit card issuers do, but the CFPB rescinded that rule in 2025, so dispute rights and procedures currently vary by BNPL provider rather than following one uniform standard.
What do Verifi and Ethoca do for BNPL-related disputes?
Both are pre-dispute alert networks, run by Visa and Mastercard respectively, that notify merchants when a cardholder contacts their bank about a charge, before it becomes a formal chargeback. That gives the merchant a chance to refund or resolve the issue directly at a much lower cost than a full chargeback, regardless of whether the original purchase was financed through BNPL or a standard card.
How much does a BNPL chargeback actually cost a merchant beyond the refund?
Industry estimates put the fully loaded cost of a chargeback, including fees, lost merchandise, and operational overhead, at roughly $3.75 to $4.60 for every $1 in dispute value. BNPL-financed disputes can add an additional provider dispute fee on top of that baseline.
