KYC and AML: The Key to Secure BNPL Services in 2023

Seems like Buy Now Pay Later (BNPL) services have taken the world by storm, with 360 million users worldwide in 2022, but the bitter truth is fraudsters have already taken the front-row seat. 

BNPL services have helped consumers make purchases worth $100 billion, from pet foods to insurance premiums over the last year. That’s a big jump with no signs of slowing down in the coming years.  

Banks and merchants are expanding BNPL services to boost B2B financing. With prices skyrocketing, the growth of BNPL would accelerate beyond the most bullish of projections making them a hub of opportunities for fraudsters. 

The Market Snapshot of BNPL 

BNPL is a payment model that lets customers buy an item and makes its purchase over several installments. Clients can get their parcels shipped immediately and they can pay off the amount over time. 

Looking at the trends of BNPL services, it is anticipated that its market value will reach $680 billion globally by 2025. The same research estimates that US clients would be using BNPL services to buy those items that would exceed their budget or avoid using credit cards. Furthermore, BNPL payments in the US would reach $82 billion in the coming months. 

The data suggests that 25% of eCommerce customers are using BNPL services in the UK, provided by approximately 20,000 merchants. Recent transactions were 5% of the eCommerce sector and were worth £6.4 billion.

Diving deep into the market makes it clear how popular these services are among youngsters. The Financial Conduct Authority (FCA) of the UK has found that 25% of BNPL users lie between the ages of 18 and 25 while 50% are between ages 25 and 36. And the astonishing thing is that 70% of users of BNPL servicers are females and 90% of the items purchased are related to fashion or footwear. 

Looking at the size of how BNPL services are growing in this digital era, it is crucial to understand its vulnerability to fraud and how to keep oneself and other businesses safe and secure. 

Suggested Read: Identity Theft Pushed to New Records with Buy-Now-Pay-Later Boom in Australia

BNPL Services – A Fraudster’s Paradise

As technology is advancing and businesses are looking to make their name, fraudsters are leaving no stone unturned to exploit them. The emergence of BNPL services has become a paradise for criminals to fulfil their malicious intent. There are several schemes that are used by fraudsters to target BNPL services which are as under:

• Synthetic ID Fraud: Criminals use synthetic identity fraud when they want to open a bank account. First, they create a fake profile merging fictional and real details like identity documents, social security numbers, addresses, etc. When they are done with making a synthetic identity, they use BNPL services to buy anything they want using others’ payment or personal information. As soon as they receive the goods, they disappear, leaving the merchant or the customer in vain— paying the bill. Synthetic ID fraud costs lenders and banks $6 million a year and is the fastest-growing financial crime in the US. 

• Account Takeover: Some fraudsters play a good game defrauding a BNPL user. They target individuals with good credit rating scores and who have taken a BNPL loan.  What they do is they get all the personal details of that customer through Account Takeover (ATO) attack and then purchase the expensive item using the genuine customer’s record with the BNPL provider. With the rising number of fraudulent activities, the FTC has warned every Buy Now Pay Later Service provider to comply with the consumer protection rules. 

Suggested Read: Buy Now Pay Later Service Openpay Warned for AML Violations

How BNPL Fraud is Harming Online Merchants

The surge in different kinds of BNPL fraud is not only causing havoc to customers but also merchants; here is how:

• Merchant Reputation: When any customer is defrauded by the BNPL service provider, they will not choose the merchant again. The frustrated customer will share their bad experience with their circle. The scenario raises questions about the merchant who cannot even secure their clients, putting a dent in their reputation. 

• Financial Repercussions: Fraudulent transactions ask the merchant for chargebacks. Merchants have to address the issue with the BNPL service provider. Many BNPL providers have also mentioned security breach clauses in their merchant agreements. This means merchants have to bear the costs in case any fraudulent transaction occurs. 

KYC/AML Services – The Only Key to Secure BNPL Services

BNPL service providers are hunting for ways to curb the increasing number of fraud and the best strategy, in this case, is to stop bad actors, not the BNPL. But how to keep those fraudsters at bay? This is where Know Your Customer and Anti Money Laundering (KYC/AML) solutions came as a ray of hope. KYC & AML solutions not only protect firms from heinous crimes but also prevent them from paying hefty fines by making them compliant with global regulations. Moreover, robust KYC services offer customers a greater user experience and help build a positive brand image in the competitive market.  

How Shufti Can Help

To detect BNPL fraud effectively, it is essential to identify subtle events and patterns formed over time. This is where Shufti steps in, offering identity verification services to 230+ countries and territories, supporting 150+ languages, and authenticating customers in less than a second. Shufti is globally trusted in eliminating synthetic ID fraud with an accuracy rate of 99+%.

Are you still confused about how KYC verification services curb fraud in the BNPL market?