Buy Now, Pay Later Fraud: The Breakdown

Buy Now, Pay Later (BNPL) has revolutionized the fintech landscape. BNPL enables customers to make payments for items in installments over time to the BNPL provider. Businesses get the complete payment from the BNPL provider as soon as the purchase is made. The introduction of BNPL has enabled more people to make high-value purchases, boosting sales for e-commerce merchants. 

The global transaction value of buy now, pay later payments in e-commerce has increased five-fold in the last 3 years and is projected to reach a whopping 300 billion USD in 2023. But as BNPL continues to explode in popularity, what are the risks to BNPL providers and users?

What types of fraud can take place on BNPL platforms?

BNPL accounts are attractive targets for fraudsters because many users store their credit cards on these accounts. This makes account takeovers (ATOs) a popular method for fraudsters to defraud BNPL accounts. ATOs happen when fraudsters gain unauthorized access to another user's account by using stolen credentials. These credentials are often obtained through the dark web or social engineering scams. Once in the account, fraudsters can make purchases using the account holder’s stored credit card information. And since payments are made in installments over time, the account holder may not be aware of the charges for a long time.

Fraudsters can also create fake accounts to commit fraud on buy now, pay later platforms. They create synthetic identities by combining legitimate details such as a social security number with made up names, emails, birthdays, and addresses. Using the fake account, fraudsters buy an item and pay for the first installment using stolen credit card information, but don't pay subsequent installments. Or if a BNPL provider doesn’t require the first payment for a month, fraudsters can make as many orders as possible without getting caught for not paying. The BNPL platform ends up having to pay the charge. 

Fraudsters may also build up credibility on a fake account by making timely payments only to then go and make large-value purchases that they don’t intend on paying back. This makes it difficult to detect if fraud has taken place or if a genuine user has just defaulted on a payment. 

On top of this, fake accounts can also be used to exploit promotional campaigns. Many BNPL providers offer sign-up promos and other seasonal promotions to attract new customers or retain current ones. For example, get $10 off your first purchase using buy now, pay later. Fraudsters take advantage of this by using fake accounts to use the same promo code over and over again, or to benefit from sign-up bonuses. Not only does this deplete the resources of the BNPL provider, it also gives them inaccurate campaign analytics and user numbers. 

How can SHIELD help stop BNPL fraud?

Since BNPL transactions take place in a matter of seconds, providers need to make rapid real-time decisions on whether or not to approve a transaction. One bad decision can cause a major loss for both merchants and providers. But implementing layers of security checks can cause friction and drive customers away to competitor BNPL providers.

SHIELD’s risk intelligence empowers BNPL providers to stop fraud on their platform without declining legitimate payments and harming the experience of genuine users. This is achieved through the SHIELD ID, the global standard for device identification. The SHIELD ID detects devices linked to multiple accounts, enabling businesses to flag fake accounts that are being used to conduct fraudulent activity. The SHIELD Risk Indicators are also harnessed to identify when and which malicious tools are in use to carry out fraud. For example, if a fraudster was using app cloners and emulators to create fake accounts and abuse promotional campaigns, the BNPL provider would be aware of this in real-time. 

SHIELD’s technology also enhances existing in-house fraud prevention solutions with data enrichment, giving fraud teams a clearer picture of risk for customers throughout the user journey. 

With the number of BNPL users expected to increase by over 150% by 2027, it’s crucial that BNPL providers are proactive in stopping fraud to ensure safe and frictionless experiences on their platform.

Learn how SHIELD can protect your BNPL platform today.