The ever-growing inflation in the last few years leaves no choice to many people but to use buy now, pay later (BNPL) during purchases. Sadly, this allows buy now pay later fraud to grow rapidly, prompting e-commerce to start looking for a better security system.
Buy now pay later services have been used since the early 21st century by fintechs and are now popularized on e-commerce sites. Now in the US alone, the BNPL market trend is estimated to reach US$145.7 billion in 2033 (according to GlobeNewswire).
While it seems that BNPL is getting the attention it deserves, sometimes attention brings unwanted people like fraudsters. Let’s learn more about the BNPL system and what kind of risks that await its potential users.
What is Buy Now, Pay Later (BNPL)?
Like the name suggests, BNPL is a service that allows customers to make a purchase and pay for it at a later date. Unlike loans, there is no interest being applied for using BNPL service.
Many people prefer BNPL when making a purchase because not only it has no interest, it also has no additional charges. This allows them to use it anytime they want without worrying about paying for more.
BNPL can be easily found mostly at online retails and e-commerce sites. This conveniently mobile shopping drives customers’ desire to use BNPL with fixed payment, anytime, anywhere.
Is the Buy Now, Pay Later (BNPL) Service Safe?
BNPL may give customers a convenient purchase with no additional price, but is pay later safe? While they are generally safe, BNPL services are not completely invulnerable to attacks known as buy now pay later fraud.
Fraudsters may find a weakness in how BNPL works in online retail and e-commerce that they can exploit. This is unintentionally because the BNPL system itself, to name a few:
- BNPL has to approve the purchase decision when the customer completes transactions, giving fraudsters an allowance to make large purchases with ease.
- There are delays in repayment, allowing fraudsters to slip to the victim’s account to use BNPL with an initial down payment and let the victim pay the rest.
- No credit checks on customers who use the BNPL service, giving fraudsters an opportunity to slip the lenient checking system.
Types of Buy Now Pay Later Fraud
In order to protect the buy now pay later online shopping experience, e-commerce sites must learn how many types of fraud target BNPL. Here are several methods frauds use:
New Account Fraud
Making a new account for e-commerce is relatively easy, but making a new account using fake synthetic identities is even easier. Fraudsters can simply steal someone’s data from hacking or a data breach to create an account.
The problem with this identity theft is that e-commerce’s current KYC (know your customer) system might not be powerful enough to detect the fraudulent acts. Plus, fraudsters can trick KYC verification using deepfakes.
Using this new account, they will be able to make unauthorized purchases using buy now pay later services. This causes not only financial losses to e-commerce but also a risk of having the victim’s personal information reused.
Also Read: E-commerce Fraud Prevention: Key Strategies for Security
Account Takeover Fraud
Why make a new one when fraudsters can just take over someone’s account? By using phishing and social engineering, they can gain access to the victim’s account, allowing them to make a purchase using BNPL.
This poses a huge risk because most of the time, victims have yet to realize their accounts have been used for BNPL. Not only do they gain nothing, but they also need to pay the remaining payments for the fraudster’s purchase.
Merchant-related Fraud
These unjust fraudsters don’t have to be a customer to commit a fraud. They can also act as a merchant on e-commerce sites, selling fake or counterfeit items with low prices to entice an unsuspecting customer.
Once the customer makes a purchase with the BNPL service, fraudsters simply disappear after the initial price is paid. This leaves the victim to pay the remaining price for the fake item.
Risks from Using Buy Now Pay Later
Aside from the potentially dangerous frauds, there are other buy now pay later risks as well. While these aren’t exactly dangerous, if being ignored, they can cause customers trouble in the long term. So, what are the risks?
- It encourages customers to buy something they don’t really need at the moment. With how easy it is to make a BNPL purchase, people can easily overuse the system without any form of self-restraint.
- There are late fees for customers that miss a payment. The more the customers miss payments, the more the late fees they need to pay for.
- Customers may potentially end up having a default. This can make customers getting exposed to legal claims and possibly blacklisted for accessing loans in the future.
- Customers can easily fall into a debt trap. It is difficult to track how many BNPL purchases they spend, especially after overspending with no proper plan to manage loans.
Pros and Cons of Buy Now Pay Later System
After knowing buy now pay later market trends and consumer impacts, as well as the risks and its own frauds, now let’s look at the summary about buy now pay later pros and cons so far:
Pros:
- Convenient way of online purchase with payment over time system.
- Fixed payment with no additional costs and interests.
- Gets a fast approval over the purchased items.
Cons:
- Risks that come from buy now pay later fraudsters.
- Can easily overspend and have a debt trap if not used responsibly.
- Potential default that leads to being blacklisted and facing lawsuits from BNPL service.
Preventing BNPL Fraud with a Device Intelligence Solution from Keypaz
Knowing the danger of BNPL fraud, it is understandable that online retailers and e-commerce sites seek better technology to combat fraudsters. Fortunately, Keypaz can help with its device intelligence capabilities.
Keypaz’s device intelligence can easily track fraudulent acts by detecting unusual behavior when they visit a website or use an app. This is because it can detect VPNs, fake proxies, or logins using bots or unknown devices.
What’s more, Keypaz can also provide real-time protection to BNPL services. Even if customers have yet to realize their account has been compromised, device intelligence will still detect unauthorized purchases by fraudsters.
At the bottom line, device intelligence from Keypaz helps businesses and retailers to face buy now pay later fraud with no hassle. Secure your online customers easily with Keypaz!