May 21, 2022

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BNPL Popularity Grows, Merchants Call for Collaboration to Fight Fraud

3 min read
Criminals exploit buy now, pay later services like Klarna and Afterpay

According to the latest reports, Buy Now, Pay Later (BNPL) is booming and shows no signs of slowing down. This popular new method of purchasing something today and paying for it later caught on very quickly as a method of financing online purchases. 

In fact, according to a new study from insurance provider Breeze, more than 74 percent of respondents have used BNPL at least once. Another 62 percent shared that they will likely use it more in 2022.

Despite the very attractive offer of BNPL, there are two key details users and merchants should be aware of. First, regulators are starting to look into consumers’ reliance on BNPL in regards to accumulating debt. As attractive as the offer sounds, if used incorrectly, BNPL can quickly turn into a debt trap that is difficult to escape.

“Buy Now, Pay Later” comes with the risk of impulse spending. Deferred payments like BNPLs take away the sting of “sticker shock” and can lead to multiple BNPL purchases that add up quickly. In addition, since BPNL offers don’t always require regular monthly payments, they can be easy to forget.

For merchants, the biggest issue with BNPL purchases is that BNPL providers are responsible for collecting payments from consumers, so merchants don’t always see the full data surrounding the consumer shopping with them. This brings about the second problem: fraud prevention.

According to experts, fraud prevention must be a collaborative effort between BNPL providers and merchants. This need is increasing rapidly, as fraudsters begin to figure out creative ways of attacking BNPL. For example, large ecommerce merchants are reporting that fraudsters are now using low-dollar orders to bypass systems.

The fraudster places a low-dollar order on a merchant’s site. Because of the low-dollar threshold for first-time purchases, it’s quickly approved and the merchant’s fraud system auto-passes the order. Several days later, the fraudster will log into their new account and place a high-dollar order on a stolen credit card.

“Because most fraud screening systems don’t attribute risk to orders placed on an account with “previous good orders,” many merchant fraud systems are passing these orders because the previous purchase, using the BNPL payment method was previously approved. Thirty to 60 days after the high-dollar credit card order is approved, and the merchandise has been shipped to the fraudster, the merchant receives a chargeback,” explains the experts at CNP.

That being said, merchants say there are still great opportunities and value in accepting BNPL. The solution to the troubles merchants face right now is continuing to implement a fix for chargebacks and strong fraud protection solutions.

Blair Thomas has been a music producer, bouncer, screenwriter and for over a decade has been the proud Co-Founder of eMerchantBroker, the highest rated high risk merchant account processor in the country. He has climbed in the Himalayas, survived a hurricane, and lived on a gold mine in the Yukon. He currently calls Thailand his home with a lifetime collection of his favorite books.

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