Identity & Fraud

Reduce Buy Now, Pay Later Fraud Risk

Reduce Buy Now, Pay Later Fraud Risk

March 21, 2022 | Sharla Godbehere

The boom of BNPL and the fraud that comes with it 

Everyone is talking about Buy Now, Pay Later as the boom continues. The value of BNPL transactions is expected to grow by 66.5% this year to reach $82.1 billion in 2022 in the U.S. With a CAGR of 32.5%, BNPL is expected to reach $443 billion by 2028 in the U.S.¹

The popular low-friction payment option that has expanded access to credit for many consumers is also attracting an increasing number of bad actors. In Australia, where BNPL gained traction earlier, fraud reports doubled in 2020 per IDCare.² The U.S. could follow a similar pattern as fraudsters follow the money and BNPL brands become more visible targets.

Types of fraud exposure

BNPL providers must contend with fraud risk from individuals posing as legitimate shoppers that present fraudulent forms of payment with stolen account numbers or synthetic identities. Organized fraud rings can have even broader impact with false identities and coordinated account takeovers. And as BNPL financing is offered on more big-ticket items, the risk associated with individual acts of fraud increases.

In addition, BNPL providers face the risk of merchant fraud. As BNPL expands beyond major retailers to smaller online retail merchants and service providers, the opportunity for fraud likely increases. The impact of a single fraudulent merchant who fails to deliver the financed goods or services can be larger, inflicting greater loss than a single fraudulent consumer.

Reduced profitability is the most obvious impact of consumer or merchant fraud. A BNPL provider’s margins diminish when second-payment default rates increase. But, BNPLs must also consider reputational risk as they seek to establish their brands and develop shopper loyalty.

Equifax helps BNPL providers fight back

Buy Now, Pay Later providers offer an attractive value proposition that has fueled remarkable growth. The speed and simplicity of financing a purchase at checkout is a key value that must be maintained. So how can BNPL providers expedite the shopping experience for good customers while making it harder for bad actors to succeed?

Of first importance is access to identity verification data. Physical identity data like address, phone number, and Social Security number, combined with digital identity data like email addresses, device ids, and payment transaction histories form the foundation for a more complete identity profile assessment. Equifax uses extensive physical and digital datasets, linked together to help verify a shopper’s identity. Lenders have used solutions that leverage these Equifax assets to help reduce fraud incidents by up to 90%.³

To reduce fraud risk while maintaining a low-friction shopping experience, BNPL providers need access to identity verification data in realtime. Selecting a data partner, like Equifax, with a broad set of linked identity data assets allows BNPL providers to reduce sources and streamline verification for simpler operations and faster responses.

And, if you would like to view my previous articles on Buy Now, Pay Later, you can click on them below: 


1 Q4 2021 BNPL Survey
2 EXCLUSIVE-Australia's BNPL boom pushes identity theft to record, data shows
3 Equifax case study 2021. Individual results may vary

Sharla Godbehere

Sharla Godbehere

FinTech Leader

Sharla leads the team focused exclusively on the rapidly evolving FinTech industry. She connects the power of data, technology, and analytics with today's future-designing companies to expedite responsible growth in lending. Sharla assists FinTechs and alternative lenders in leveraging Equifax’s unique data to make bet[...]