Buy Now Pay Later: Risks and Fraud Prevention

The growth of eCommerce and financial sectors in recent years has allowed digital payment methods to expand their reach and introduce new developments. From digital or e-wallets to using your wearables for payments to buy now, or even pay later method (BNPL), there are plenty of alternative payment methods to choose from. Out of all of them, the buy now, pay later method (BNPL) has started to gain popularity in recent years. It allows customers to afford products and services that they might not be able to get usually by giving them a chance to pay for them later. But, customers and merchants are not the only ones who benefited from BNPL, as fraudsters and cybercriminals have found a way to exploit it for their own gain.

Why are customers and merchants choosing BNPL?

BNPL has an excellent appeal for everyone, from customers to merchants and even fraudsters. The attraction it has for customers is easy to understand as it allows them to immediately get the items they need or want without paying the entire cost. While some customers are unwilling to pay the entire price upfront, some are unable to do so. BNPL solutions allow them to access the item or service without waiting or going without the product or service until they can afford it upfront. According to research by C+R, 45% of BNPL customers use the service frequently (at least once a month or more), with 47% claiming they use it almost every time they shop online.

Merchants are also benefiting from this alternative payment method as they get more sales than in traditional ways, especially from the customers who might not be able to set aside a certain amount to purchase the item immediately. Not only will implementing BNPL payment methods result in more return customers, but it will also reduce the number of abandoned carts as customers will be able to buy what they might have had to give up before.

The BNPL payment method also holds attraction for fraudsters and cybercriminals. It is still a developing sector meaning the security level and regulations are still not at the adequate level to offer complete protection to customers and merchants. This is why buy now pay later fraud prevention needs to become a priority for any business that wants to stay safe and protect their customers.

Challenges of BNPL

As with any other financial activity, businesses that are dealing with BNPL payment methods are also under the constant risk of fraud. BNPL fraud is a broad term for any fraudulent activity that is related to BNPL activities.

The most common types of BNPL fraud are:

  1. New Account Abuse
  2. Synthetic Identity Fraud
  3. Account Takeovers (ATOs)
  4. Fraudulent Chargebacks
  5. Transaction Laundering
  6. Never-Pays Fraud
  7. Trojan Horse Fraud

Businesses dealing with any type of payment methods are most favorable among fraudsters as it gives them the opportunity of double gain. Not only can they gain access to money but also sensitive data they can use for further fraudulent activities. It gets even easier with BNPL as this method is still relatively new, so merchants are not as prepared to deal with BNPL fraud as with other most common types. It also takes longer for customers to notice something is wrong as they are not billed immediately, so they will not be checking their bank statements often. The popularity of the BNPL payment method will only grow, especially with tech giants such as Apple jumping on the wagon and introducing BNPL solutions. This is why developing an efficient fraud prevention strategy is essential for any business that wants to remain successful.

How to prevent BNPL fraud?

Australia started implementing buy-now-pay-later payment methods earlier, becoming a pioneer in the sector, showing us what we can expect in terms of growth but also fraudulent activity. The number of complaints involving the buy-now-pay-later payment method has doubled to a record number in 2020, and it will continue to grow as long as more businesses implement it. Fraud prevention is no longer an option; if you want to protect your business and its customers, you need to take steps in the right direction.

1.   Introduce Rule-Based Risk Assessment

Running a risk analysis is essential for the success of any element of the business, from marketing to cybersecurity. It can help you determine the course of action and make better-informed decisions that are necessary to continue growing your business. The process can be expanded by implementing a rule-based risk assessment that collects historical data to identify fraudulent activity and determine the user’s risk factor.

2.   Combine Risk Assessment and Data Enrichment

Knowing more about your customers will allow you to determine their risk factors more efficiently without causing user friction. Comparing the data you collected with the data you gather from external sources can help you recognize any red flags connected with users’ accounts or any discrepancies as soon as they arise.

Businesses can enrich their data by using:

  • Email address
  • IP Address
  • Bank Identification Numbers (BIN)
  • Device fingerprint
  • Phone Number

3.   Implement custom rules

Every business is different and will face different types of threats, which means the same fraud prevention strategies will not work the same for all of them. This is why it needs to be adaptable and customizable so it can become a right fit for everyone. Determine your own custom rules to ensure they are right for your business and the type of threats you will most likely deal with. This way, you can develop the most suitable method for your business and customers to stay protected.


Alternative payment options, including BNPL, will only get more popular as technology and the internet keep advancing. This means that fraudsters and cyber criminals will keep on coming up with new methods to exploit businesses and customers dealing with BNPL leaving all of them wondering what the future of alternative payments is. There is no point in avoiding these technological developments out of fear, as it brings more benefits, especially with businesses implementing fraud prevention strategies to ensure everyone stays protected. As long as the companies are diligent about their fraud prevention strategy and customers practice good online hygiene, the BNPL sector and its benefits can continue to grow.

Interesting Related Article: “5 Ways to Prevent Cybercrime from Happening to You