One of the hottest areas in fintech is undoubtedly the buy now pay later (BNPL) sector. BNPL services are growing at a rate of 39%, with major players like PayPal, Amazon and Square all acquiring existing BNPL companies in multi-billion dollar deals. In fact, a joint Credit Karma/Qualtrics survey reports that 44% of Americans already use a BNPL service.

But wherever money goes, fraud will follow

Fraud Liability with BNPL

BNPL fraud is no different to other kinds of eCommerce fraud. Fraudsters will create a profile using a synthetic ID and enter stolen credit card details, the BNPL company will take the payment and ship and item to an address where the fraudster can collect the item for resale. After the original cardholder notices the suspicious payment and initiates a chargeback the BNPL company will be hit by a chargeback fee.

Fraud can also occur when fraudsters use their own identity data in combination with stolen, synthetic, and/or fake data to pass through both fraud and credit checks with no intention of making repayments on the purchase

The good news for merchants is that most BNPL providers will accept the liability for fraud that occurs. However while the liability might fall on the BNPL, your reputation as a reliable merchant could still take a hit. Therefore, it’s in the merchants and the BNPL providers best interest to build a complete customer profile before any transactions are made.

Conclusion

As the BNPL fever catches on, it’s important to watch out for sophisticated fraudsters who are finding new ways to exploit the system. Leveraging machine learning models to assess the transactions against identity data and customer behavior data — is a powerful move to stop BNPL fraud.

Our platform also provides several other features tailored to help financial institutions prevent BNPL fraud so they can keep pace with this popular payment option without the risks.