This article was updated on February 12, 2024.
The Buy Now, Pay Later (BNPL) space has grown massively over the last few years. But with rapid growth comes an increased risk of fraud, making “Buy Now, Pay Never” a crucial fraud threat to watch out for in 2024 and beyond.
What is BNPL?
BNPL, a type of short-term financing, has been around for decades in different forms. It’s attractive to consumers because it offers the option to split up a specific purchase into installments rather than paying the full total upfront. The modern form of BNPL typically offers four installments, with the first payment at the time of purchase, as well as 0% APR and no hidden fees.
According to an Experian survey, consumers cited managing spending (34%), convenience (31%), and avoiding interest payments (23%) as main reasons for choosing BNPL.
Participating retailers generally offer BNPL at point-of-sale, making it easy for customers to opt-in and get instantly approved. The customer then makes a down payment and pays off the installments from their preferred account.
BNPL is on the rise
The fintech and online-payment-driven world is seeing a rise in the popularity of BNPL. According to Experian research, 3 in 4 consumers have used BNPL in 2023, with 11% using BNPL weekly to make purchases.
The interest in BNPL also spans generations — 36% of Gen Z, 43% of Millennials, 32% of Gen X, and 12% of Baby Boomers have used this payment method.
The risks of BNPL
While BNPL is a convenient, easy way for consumers to plan for their purchases, experts warn that with lax checkout and identity verification processes it is a target for digital fraud. Experian predicts an uptick in three primary risks for BNPL providers and their customers: identity theft, first-party fraud, and synthetic identity fraud.
Victims of identity theft can be hit with charges from BNPL providers for products they have never purchased.
First-party and synthetic identity risks will emerge as a shopper’s buying power grows and the temptation to abandon repayment increases. Fraudsters may use their own or fabricated identities to make purchases with no intent to repay. This leaves the BNPL provider at the risk of unrecoverable monetary losses and can impact the business’ risk tolerance, causing them to narrow their lending band and miss out on properly verified consumers.
An additional risk lies with fraudsters who may leverage account takeover to gain access to a legitimate user’s account and payment information to make unauthorized purchases.
Mitigating BNPL risks
Paired with the right data, these tools can give businesses a comprehensive view of consumer payments, including the number of outstanding BNPL loans, total BNPL loan amounts, and BNPL payment status, as well as helping to detect and apply the relevant treatment to different types of fraud.
By accurately identifying customers and assessing risk in real-time, businesses can make confident lending and fraud prevention decisions.
To learn more about how Experian is enabling the protection of consumer credit scores, better risk assessments, and more inclusive lending, visit us or request a call. And keep an eye out for additional in-depth explorations of our Future of Fraud Forecast.