BNPL Chargebacks and Returns: How to Handle Installment Disputes as a Merchant

When a customer buys something with BNPL and later claims they never got the item-or it’s broken-merchants don’t just get a return request. They get a tangled mess of rules, deadlines, and hidden fees that vary by provider. Unlike credit cards, where the process is standardized, each BNPL company-Affirm, Klarna, Afterpay, Sezzle-has its own playbook. And if you’re not following it exactly, you lose money.

Why BNPL Disputes Are Different from Credit Card Chargebacks

With a credit card, the bank handles the dispute. You submit proof, they decide, and if you lose, the money comes out of your account. Simple. With BNPL, the provider pays you upfront. The customer pays the provider in installments. So when a dispute happens, the provider becomes the middleman-and they’re not always fair.

The Consumer Financial Protection Bureau (CFPB) stepped in in March 2023 and said BNPL providers must follow the same rules as credit card companies under Regulation Z. That means they must investigate disputes, pause payments during the process, and refund money if the item was returned or never delivered. Sounds good, right? But here’s the catch: the providers still get to decide how they handle it.

Merchants are stuck in the middle. You can’t just tell the customer to talk to Affirm. You’re still responsible for proving delivery, handling returns, and dealing with the fallout when the provider sides with the customer-even if your evidence is solid.

How BNPL Providers Handle Disputes (And Why It’s a Mess)

Every BNPL company has different rules. You can’t treat them the same way.

• Affirm: Gives you 14 days to respond. Requires signed delivery confirmation. If you provide it, you win 68% of the time on "item not received" claims.
• Klarna: Only gives you 72 hours to respond. Demands proof of delivery within that window. If you miss it, you lose-even if you had the signature. Their merchant win rate for the same claim is just 42%.
• Afterpay: Automatically refunds transactions under $50 through Visa’s Rapid Dispute Resolution (RDR). No investigation. No appeal. Just money gone.
• Sezzle: For claims over $150, they require video proof of package delivery. Not a photo. Not a tracking screenshot. Actual video.

And it gets worse. A 2023 survey by the Merchant Risk Council found 67% of merchants don’t fully understand their contracts with BNPL providers. That means you’re signing agreements you don’t even comprehend-and then getting hit with fees you didn’t know existed.

The Hidden Costs of BNPL Disputes

It’s not just about losing the sale. You pay fees, lose time, and risk your merchant account.

• Affirm charges a $15 dispute fee per case, plus you have to repay the full amount if the dispute is upheld.
• Klarna doesn’t charge a fee, but they don’t give you much time to respond. Miss the deadline, and you’re on the hook.
• Afterpay’s auto-refund system for small claims means you lose $50 or less without a fight-even if the customer is lying.

According to ChargebackGurus’ 2023 study, merchants pay 22% more to resolve BNPL disputes than traditional credit card chargebacks. Why? Because you’re not just fighting one system-you’re fighting seven different ones.

And if you’re running a fashion or electronics store? You’re a target. BNPL dispute rates in those categories are 18.7% higher than average, according to Harvard Business School’s 2022 study. Customers use BNPL to buy expensive items they can’t afford upfront-and then return them easily.

What Evidence Actually Works?

Proof of delivery isn’t enough anymore. You need the right kind of proof for each provider.

• For Affirm and Klarna: Signed delivery confirmation with the recipient’s name and date. FedEx, UPS, or USPS tracking alone won’t cut it.
• For Sezzle: Video footage of the package being handed to the customer. No exceptions.
• For Afterpay: If you’re using Visa’s RDR, you can set rules to auto-refund claims under $50. It’s cheaper than fighting.
• For all: Keep communication logs. If the customer emailed you saying "I didn’t get it," and then filed a dispute, that’s evidence you can submit.

One Shopify merchant in Ohio lost $28,500 in Q1 2023 because multiple BNPL providers disputed the same orders-all because of a supply chain delay. They had delivery proof for every item, but the providers didn’t care. The system didn’t recognize that the delay wasn’t their fault.

How to Protect Your Business

You can’t control how BNPL providers operate. But you can control how you respond.

1. Set up auto-refunds for small claims. If you’re using Visa’s RDR, configure your system to auto-refund any "item not received" dispute under $50. It costs less than fighting.
2. Use a unified dispute platform. Tools like Chargeflow and Chargeback Gurus let you manage all BNPL providers in one dashboard. 43% of enterprise merchants now use them.
3. Track deadlines like a hawk. Klarna gives you 72 hours. Affirm gives you 14. Set calendar alerts. Don’t rely on email notifications-they’re unreliable.
4. Document everything. Save delivery receipts, customer emails, return requests, and tracking numbers in a folder labeled "BNPL Disputes." You’ll need them.
5. Know your contract. Read the fine print. Some providers hold you liable for 89% of "item not as described" claims. That’s higher than credit cards.

What’s Changing in 2025?

The industry is starting to wake up. In November 2023, the Electronic Transactions Association formed a BNPL Dispute Working Group to create common standards by Q3 2024. That’s a big deal.

Klarna launched its Merchant Dispute Dashboard in September 2023, giving real-time tracking. Affirm extended their response window from 7 to 14 days. These are small wins.

Gartner predicts 45% of merchants will use AI-powered dispute tools by 2025. These tools can automatically match your delivery proof to the provider’s requirements and flag risky claims before they turn into disputes.

But here’s the reality: until there’s one standard, you’re still playing a game where the rules change every time you switch providers.

What to Do When a Dispute Hits

When a dispute lands in your inbox:

• Don’t panic. Don’t reply to the customer. They’re not the decision-maker.
• Check which BNPL provider it came from.
• Log into their merchant portal immediately.
• Find their exact evidence requirements.
• Upload what they need-within their deadline.
• Keep a copy of everything you submitted.

And if you lose? Don’t accept it. Some providers let you appeal. Others don’t. But if you believe the decision was wrong, file a complaint with the CFPB. They’re watching.

Final Reality Check

BNPL is convenient for customers. But for merchants? It’s a minefield. The CFPB’s 2023 rules helped-but they didn’t fix the system. They just made providers follow the letter of the law, not the spirit.

If you’re using BNPL, you’re not just accepting payments. You’re accepting risk. And that risk is growing.

The best merchants aren’t the ones who use BNPL the most. They’re the ones who understand the rules, plan for the disputes, and have systems in place before the first claim hits.

You can’t avoid BNPL. But you can stop getting burned by it.