There is more than meets the eye from the buy now pay later feature. Hence, companies need to acknowledge buy now pay later pros and cons and what kind of risks that it entails.
In the modern age, this digital transaction continues to grow. A recent study from Juniper Research resulted in a bold claim that BNPL transaction value will reach $687 billion in 2028, about 106% from 2024’s.
Aside from its exponential growth, BNPL also comes along with the looming threat of online fraud. So, what should companies do to deal with them? The answer lies inside from how the BNPL system itself works.
What is Buy Now Pay Later (BNPL)?
Like the name suggests, BNPL refers to a financing system where customers can make a purchase by paying for it in the future. The system implements payment over time with a due date that varies depending on the services.
What makes buy now pay later services that are appealing is, unlike the credit system, they have no additional charges or interest rates. This allows customers to make a purchase without worrying about overpriced payment.
BNPL is often seen on online services, especially e-commerce. This buy now pay later online shopping system encourages customers to make a large purchase, boosting higher sales and attracting new potential customers.
How Buy Now Pay Later Works
So, how do buy now pay later services work? In short, it is as simple as customers selecting the BNPL option when completing the transaction. Here’s the general idea of how it works:
- Customers use a service with the BNPL option and make a purchase or transaction. Depending on the services, some limit how many purchases customers could use.
- In the payment selection, they can opt for BNPL. Customers may have to make a payment for the first installment, similar to a down payment.
- Customers get the services and now have to make a payment over time. Should they miss an installment, the providers can give them a grace period or charge them with late fees.
Buy Now Pay Later Pros and Cons
Based on the explanation above, it seems that BNPL is a very appealing payment system, or is it too good to be true? Here’s a summary about buy now pay later later pros and cons:
Advantages
Let’s start with buy now pay later pros and cons from its advantageous benefit first. This payment model gives a benefit to both customers and companies, to name a few:
- Allows customers to make a purchase or transaction without having enough money. This makes them able to spread out the payment over time, giving them more space to manage their monthly expenses.
- Increases conversion rate and reaches new customers at ease. BNPL helps online retailers to sell more expensive items, eliminating the inability to spend on luxury products and attracting lower social classes.
- Impacts the way customers do online shopping. Research from The Conversation suggests that customers who use BNPL spend more money to make a purchase, up to 6.42%, compared to those who don’t.
Disadvantages
Unfortunately, the payment system also comes with the bad side. Here are the disadvantages that provide challenges for companies that add the BNPL system:
- Encourages customers to buy, even if they don’t need it now. While it sounds good for companies with BNPL services, the customers will be at a disadvantage in the long run.
- Late fees that may overwhelm customers who use BNPL a lot. Most of BNPL customers are often not financially stable, so the late fees may quickly pile up if they miss payments often.
- Potentially creates a debt trap for customers who mismanage. They can also end up having a default, which can expose them to legal troubles and a blacklist from getting future loans.
Risks of Buy Now Pay Later
Now that buy now pay later pros and cons have been explained, let’s talk about something important: the risks. One of the major buy now pay later risks involves a scheme made by online fraudsters to gain a profit.
Not only does this cause financial losses to the victims, but buy now pay later fraud can also impact companies negatively. For instance, they may put their reputation at stake, especially after the rapid loss of consumer trust.
The risks do not stop there, as companies that fail to protect their customers from fraud can also face regulatory fines. There are laws that punish those who don’t comply with the strict “protecting customer” rules.
Also Read: Buy Now Pay Later Fraud: Risks, Safety, and Market Impacts
Types of Buy Now Pay Later Fraud
So, what kind of buy now pay later risks awaits companies with BNPL services? Here are a few examples:
- Account takeover, which is the most well-known method of BNPL fraud. Fraudsters will make a purchase using stolen accounts without notice, leaving the victims to pay for their unauthorized purchases.
- Synthetic identity fraud, which allows fraudsters to create a fake identity using combined real person biometrics. This allows them to pretend to be a legitimate person, letting them make a purchase using BNPL and get away with it.
- Refund abuse, which lets fraudsters file a dispute over a false claim that they didn’t make the purchases. This vulnerability lets them keep the money and the product, giving the financial losses to the merchants.
- New account fraud, which is similar to synthetic identity fraud, except they just use unregistered stolen data to create the account. This is because BNPL services don’t have a solid KYC (Know Your Customer) system.
How can Keypaz help to stop BNPL Fraud?
Seeing buy now pay later market trends and customer impacts these days makes the payment system worthwhile, but is pay later safe enough to be implemented in business? Sure, if you also have the best anti-fraud solution.
Keypaz, for example, provides robust and secure anti-BNPL fraud protection by implementing cutting-edge technologies. Ranging from real-time detection, advanced fraud prevention, and seamless AI authentication.
The device intelligence from Keypaz can ensure only legitimate people can register or make purchases using the BNPL feature. It also prevents using VPNs and fake proxies, known for new account fraud and promo abuse.
With Keypaz, your services can stay protected while allowing customers to use your BNPL to make a purchase. Now, all you have to do is consider whether the buy now pay later pros and cons explained above are truly worth it.