Buy Now, Pay Later (BNPL) options are rapidly becoming a popular trend in online shopping, offering a convenient alternative to traditional credit card purchases. However, this innovative payment method also introduces new avenues for fraudsters to exploit, posing challenges for e-commerce sites.
With BNPL transactions in the U.S. reaching billions and projected global sales via point-of-sale installment loans expected to soar, the urgency to address BNPL-related fraud is evident.
BNPL Mechanics and Merchant Considerations
BNPL functions as an installment loan at the point of purchase, with providers conducting soft credit checks to approve customers. While this offers attractive payment flexibility for consumers, merchants bear additional costs, typically ranging from 3% to 5% per transaction, plus transaction fees.
While offering BNPL can broaden customer bases and boost sales, especially among younger demographics, it does come with increased costs and fraud risks for merchants.
Pros and Cons of BNPL for Merchants and Consumers
BNPL offers benefits such as reduced shopping cart abandonment, increased sales, and a broader customer base. However, it also presents drawbacks like higher transaction costs, potential for increased fraud, and relinquishing access to customer data.
Addressing Increased Fraud and Unregulated Industry Concerns
Despite some BNPL providers assuming fraud and chargeback liability, merchants must maintain vigilant fraud prevention measures. Employing multi-layered fraud management approaches and continuously monitoring transactions for fraud indicators is crucial.
Furthermore, the largely unregulated nature of BNPL firms means they typically adhere to minimum data security requirements, underscoring the importance of merchant vigilance.
BNPL’s Impact on Credit Scores
While BNPL does not directly improve buyers’ credit scores, late or missed payments can negatively impact them. This aspect, combined with the ease of account takeover and creation of fake accounts for fraudulent purposes, highlights the need for robust security measures.
BNPL Exploitation by Fraudsters
Fraudsters commonly exploit BNPL options through account takeovers and the creation of fake accounts using stolen credit card credentials. These tactics can severely impact both providers and merchants, with customers often holding merchants accountable for fraud.
BNPL Usage Without Merchant Endorsement
Consumers can use BNPL services even if a merchant does not directly offer them, through apps like Klarna that create virtual debit cards or QR codes for payment. This backdoor approach to eCommerce fraud further complicates the security landscape for merchants.
Bankcard International Group’s Approach to BNPL Fraud
At Bankcard International Group, we understand the challenges posed by BNPL options and are committed to helping merchants balance fraud prevention with customer convenience. We offer tailored solutions including fraud monitoring, chargeback prevention, and assistance in reducing chargeback ratios.
Our team of ETA-Certified Payments Professionals is equipped to advise on the best practices and solutions to safeguard your business against BNPL fraud while offering the payment options your customers prefer.
Contact us to explore how we can support your business in navigating the complexities of BNPL transactions safely and effectively.
