Buy Now, Pay Later (BNPL) companies are more popular than ever, having quickly become a $100 billion industry in the past few years. This rise has attracted more users, companies and investors to the sector. Sadly, fraudsters always follow the money, which unfortunately has made the industry a target.
Battling fraud in the BNPL sector
BNPL is one of the fastest growing sectors within the fintech ecosystem, with millions of shoppers now using this payment option to complete all manner of transactions. According to forecasts, nearly 30 percent of American internet users will be using BNPL services by 2025. In addition, over the past few years, we have also seen major players like PayPal, Amazon and Square all announce plans to enter the field.
On the face of it, the BNPL industry is primed for years of continued success, but those in the sector must remain vigilant about the risks of fraud. If history tells us anything, it’s that fraudsters always follow the money, and right now, that money is heading to BNPL companies. So, what are the risks that those in the field must be aware of, and more specifically, what preventative measures can be taken to ensure operations remain safe?
Know your customer, know the risks
The types of fraud experienced by BNPL companies are not necessarily different from those experienced across other sectors. Primarily, businesses in the industry are vulnerable to fraudsters who set up fake profiles using either synthetic ID, or stolen credit card details. Without effective security protocols in place, fraudsters can receive an item without ever making a proper payment and then resell or keep the item for personal gain.
That’s why it’s so important for BNPL companies to ensure they’re upholding stringent Know Your Customer (KYC) checks when evaluating applicants. With such solutions in place, businesses can dramatically cut down the risk of this form of fraud. Unfortunately, not all KYC checks are built equally. To this end, the battle is to find a service that offers effective protection, while not creating too much friction in the existing payment process.
Time for real-time data enrichment
Thankfully, modern services, which utilize real-time data enrichment offer an ideal solution in this endeavor. This form of service allows merchants and BNPL providers to carry out checks on every customer in the background, assembling hundreds of data points and analyzing them in a matter of seconds. Purpose-built solutions utilize publicly available social and digital data enrichment to build a comprehensive picture of a potential customer without having to ask users to submit information themselves.
With this information, businesses can make real-time decisions on potential applicants. What’s more, in the many instances in which it can’t be immediately determined whether a transaction is coming from a legitimate or fraudulent source then adaptive difficulty can be deployed. In turn, this would subject borderline cases to further security checks, thus filtering out many fraudsters who would otherwise be undetected.
Building for the future
It’s clear that BNPL businesses have now entered the mainstream. Moving forward, those in the sector would be advised to focus on staying one step ahead of fraudsters who will increasingly look to target the sector. As with any emerging sector, it’s unlikely the BNPL industry will look the same in five years as it does today. So, it’s now up to businesses in the field to make sure this future is as fraud free as possible.
Jimmy Fong, CCO at SEON, is a young veteran in the fraud detection space. The last three leading fraud and payments startups he has been involved in have been acquired by Visa, Ingenico and American Express. Fong is a regular speaker on disruptive technology in the fintech space and a massive advocate of flattening the tech barrier for merchants and financial institutions to fight fraud effectively. A graduate of Edinburgh University, he looks to marry his passion for tech with doing a bit of good in the world.