As the cost-of-living crisis intensifies in Australia, consumers are increasingly turning to buy now pay later (BNPL) services as a means of managing their finances.

While this may help balance the books for retailers in the short term, there is a real risk to retailers when it comes to providing BNPL services, not to mention a cost. Klarna for instance charges merchants a transaction fee of $0.30, along with variable fees ranging between 3.29% and 5.99% of the transaction total.

The risk associated with BNPL for retailers carries with it financial ties and it urges me to beg the question: Should consumers bear the cost of BNPL services to alleviate the pressure on retailers as the financial squeeze tightens?

The opportunity for Australian to pass on BNPL merchant fees to consumers opens a new channel to mitigate the risks associated with offering such services. While it may not be a popular decision, it is a necessary one to ensure that retailers remain not just profitable, but more importantly sustainable in the long term.

While the fees may be small, BNPL fees do add up over-time. For some retailers that offer BNPL services without passing on merchant fees this becomes a risk of incurring significant financial losses due to increased returns and chargebacks.

Passing on BNPL merchant fees to consumers could also help increase transparency and awareness. Customers often overlook or accept the small surcharges that they incur through the use of credit cards at terminals, so why should they not look at BNPL services in the same light?

By empowering retailers to take action on the cost of payments, we can enable further transparency with consumers to understand the true cost of leveraging the benefits of BNPL services. This, in turn, can help build trust and loyalty between retailers and consumers — it’s a win-win.

There is however a downfall to passing on BNPL merchant fees, and that is the risk of losing a customer altogether. There’s no doubt about it that fees for BNPL services could see an additional few dollars, not cents, added to the bill of a customer that’s already facing economic headwinds. But, what if we could mitigate the merchant fees, while still passing on the cost?

White-labelled, embedded finance solutions provide a new opportunity for retailers to reduce the cost of instalment payments to customers as retailers have the power to set the fee they feel comfortable passing on.

There are now a range of white-labelled, embedded finance solutions available for retailers to easily access and adopt into payment processes. These solutions allow retailers to offer their own branded instalment payment services that can create a more seamless payment experience for customers.

Regardless of the path taken, it is clear that retailers need more flexibility from instalment payment services to allow them to place the surcharge where they deem necessary. White-labelled embedded finance solutions present a cost-effective and flexible solution for retailers looking to pass on the cost. By taking action on the cost of payments, retailers can create a more transparent, efficient, and sustainable payment ecosystem for all stakeholders.

Willie Pang is CEO of APRIL.