Buy now, pay later: How nextgen financing platforms can survive the new frontier of fraud

by | Jun 29, 2022 | Technology

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Buy now, pay later (BNPL) financing reached record heights in 2021. A September study by Accenture revealed some 45 million BNPL users in the U.S. alone, representing more than 300% year-over-year growth since 2018, according to the Pew Trusts. Ecommerce merchants are proving all-in on partnering with BNPL platforms to offer short-term financing to those clamoring for it – and clearly many are. 

But, as with any new financial product, caution is prudent. BNPL schemes are no doubt proving lucrative for fraudsters as a new payment fraud avenue. As BNPL attracts regulatory scrutiny, these platforms are at a crossroads. Could a well-devised risk strategy, equipped with the appropriate analytic guardrails, help secure the future of this payment modality?

Nextgen layaway: BNPL defined

BNPL is a short-term line of credit offered at the point of sale, either in person or online. Amounts generally range from less than $100 up to $10,000. Unlike traditional credit lines, BNPL accounts don’t require a full credit check, making it easier for people with no credit, or even bad credit, to get approved.

Consider BNPL a modern-day layaway program. Like the layaway plans first popularized during the Great Depression, the consumer pays in predetermined installments, instead of paying the full amount upfront. The big difference? This layaway reboot offers instant gratification: the buyer receives the purchase immediately without having to wait until it’s paid off. 

Merchants offer BNPL to attract new customers, particularly the kind less likely to abandon their carts and more willing to drop cash on higher-ticket items. Many BNPL service providers don’t even charge interest or fees, provided payments are made on time and the remaining balance is paid in full. Instead, the merchant pays a percentage fee on each transaction. 

This flexible payment model has proven particul …

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