BNPL is the latest fraud target—and providers should act quickly to avoid losses

The things that have been on our mind We’ve been contemplating the increasing incidence of online fraud, paired with the rise in buy-now pay later (BNPL) activity, and how these two issues could affect the holiday shopping season for consumers. The industry’s most well-known BNPL players have experienced increased fraud, as per fraud specialists who talked with CNBC.

Over 45 million BNPL service users this year. Insider Intelligence

The BNPL scam is possible in two ways:

  • Account takeover happens when criminals get access to an existing BNPL customer’s account to make purchases that are not authorized. Insufficient authentication of identity and checkout procedures allow for this type of fraud.
  • Fake account opening is the act of criminals who steal personal information to create the BNPL account under the pretense of an identity of someone else’s. This can happen when BNPL providers use methods to determine creditworthiness–like proprietary algorithms or soft credit checks–miss fraud indicators like an email address or phone number that doesn’t match the applicant.

It’s worth keeping an eye on. According to Insider Intelligence forecasts, the amount of US BNPL users is predicted to reach 45.1 million by the end of this calendar year. According to Deloitte, thirty percent of shoppers are planning to utilize the BNPL plan to boost their budgets.

To maximize sales potential during the holiday season — which is expected to bring in $1.092 trillion, per eMarketer forecasts from Insider Intelligence–, BNPL providers are creating new offerings and making deals.

Afterpay has recently introduced an application that allows customers to pay for recurring costs by installments. This can increase the number of subscriptions as they are more commonplace. The majority of four people are enrolled in at least one subscription in active use, per ACI Worldwide.

Klarna has recently introduced their Pay-Now service, which allows customers to pay in full whenever Klarna is accessible–to the US. This could make the service attractive to shoppers regardless of whether they want to make use of an installment plan or not.

In the last month, Splitit joined forces with the e-commerce platform Wix so that its merchants could provide a BNPL payment option during checkout.

The most important takeaway: Growing BNPL activity provides fraudsters with more significant opportunities to play the system. This makes it more prominent than ever before for BNPL merchants and providers to enhance consumer protections.

BNPL providers could enable more secure authentication of identities, both at the time of the account opening process and at checkout. It could be similar to agreements with companies such as Jumio that use AI-based authentication and identity verification to reduce fraud purchases.

Merchants may also collaborate with fraud prevention specialists such as Vesta, which employs machine learning technologies to detect unusual purchases related to fraud. Fraud prevention helps merchants keep customers’ loyalty and avoid financial loss.

In the absence of fraud protections, BNPL providers run the possibility of losing customers who may choose to use other payment options like credit cards. Credit cards provide better protection against fraud than with BNPL due to fear of fraud.

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Robert Scoble
Robert is the assistant managing editor for HC News, overseeing coverage of markets, companies, strategy and business leaders. Originally from Boston, Scoble began his journalism career in 1997 & now resides outside New York.

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