New fashionable payment methods are also popular with fraudsters.
BNPL can improve the customer experience and seal the deal at the point of payment, increase sales conversions and give these customers better insight into their cash flow. It is also growing in popularity, with PYMNTS research finding that over 50 million consumers have used BNPL in the last 12 months.
But where new digital payment methods have the opportunity to take hold, there is also the possibility of fraud.
These are BNPL’s main lures – ease and speed – that open the door to malicious actors. It is important to note that there is particular appeal here, as BNPL providers are generally newer companies with relatively untested cybersecurity measures in place.
This makes them especially vulnerable to account takeovers and all sorts of other schemes, where criminals create fake accounts or use fake credentials when trying to transact – paying a single installment. , perhaps, then leaving with the goods.
While traditional lending businesses have extensive approval processes in place, BNPL providers may not. Xie noted that to stay ahead, BNPL providers can protect consumers and merchants through the use of advanced technologies, such as artificial intelligence (AI) and machine learning (ML).
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The quest for speed
Suppliers themselves, Xie said, are walking a thin tightrope. If you lean too much towards difficult applications and transactions, the BNPL provider runs the risk of rejecting good transactions and good users. Once one of BNPL’s main selling points – its ease of use – wears off, users leave the experience, never to return, opting instead for another payment method.
While trying to provide the best customer experience possible, BNPL providers may not dig deep enough (or have the tools at hand) to be able to discern whether the card credentials presented belong to the person making the transaction, or if the account or credentials are fake. Merchants or lenders who do not necessarily require the use of cards for installment loans may fall victim to synthetic identity fraud.
“There have been a lot of data leaks due to other security incidents, and there is a lot of easily accessible personal information that can be exploited,” Xie said. This data can be used by criminals to present an “identity” that has a name, address, and good payment history.
Xie told Webster that while the lost money is usually paid by the BNPL provider instead of the merchant, all parties bear the risk of reputational loss and general brand damage.
What needs to be done
As Xie told Webster, “We need additional measures and new technologies in place, to provide benefits to the ‘right’ users, but prevent those benefits from being manipulated. »
This means upgrading at least some of the tools already in the Anti-Fraud Toolkit, while using newer technologies to help provide context around BNPL applications and payments – well beyond credentials. base and loan amounts. Upgraded platforms can ensure that real-time decision-making functionality remains intact.
Unsupervised ML, she said, avoids the fact that BNPL transactions simply do not have the historical data in place that would normally feed rules-based or traditional risk control processes.
Xie added that in tandem with AI, technology and hyper-scalable platforms can identify patterns that can reveal fraudulent attempts that human scrutiny might miss.
Context, she said, can help identify certain BNPL vendors or even product categories that are most at risk and vulnerable to attack. As BNPL transactions accumulate, these same advanced technologies can hone in on past consumer behavior to identify risk.
She argued that depending on the nature of the goods being shipped, such as high-end or luxury goods, BNPL suppliers may wish to add additional review steps into the mix before the items are sent.
“These are the ‘borderline’ cases you’ll want to review,” Xie said, “where you can add to the degree of scrutiny, but not necessarily the number of denials of good deals.”
Looking ahead, BNPL as an industry is so nascent that there are vulnerabilities that haven’t surfaced yet. But if the BNPL ecosystem takes the holistic approach of protecting consumer lifecycles across different activities and channels, strong fortresses can be built.
“We’ll learn as we go,” she told Webster.