Buy Now, Pay Later (BNPL) financing has become hugely popular over the last few years. However, as the industry grows and providers expand their offerings, BNPL fraud is likely to become more of a target for fraudsters.
A new report from Callsign, looks at the current state of BNPL, how the benefits for users weigh up against the risks of fraud, and the impact it has across BNPL providers, merchants and banks.
The research found that globally, 41% of consumers have used a BNPL services.
Gen Z and Millennials make up the majority of BNPL users (57% use BNPL services), while Gen X are also avid users with 46% of consumers using the service, indicating that widespread adoption is growing across all under 50s.
What’s more, the research found that half (51%) of those who use BNPL services use more than one provider, with almost a quarter (23%) using more than three.
Additionally, research from the analyst firm 451 Research (S&P Market Intelligence) found that one in five consumers made a purchase they were not intending to make due to a retailer offering BNPL.
E-commerce and merchant benefits
This not only presents a great opportunity for BNPL providers – with the promise of high adoption and consumers foregoing brand loyalty to sign up to multiple services – but it also benefits merchant and e-commerce businesses.
With more checkout options, merchants are also able to leverage increased sales and easier conversions. So much so that some estimate it to increase rates by 20-30% and lift the average ticket size between 30% and 50%.
BNPL brings a host of new revenue opportunities for e-commerce organisations, from greater average basket size to more sales.
With consumers willing to blame merchants alongside the BNPL provider for fraud (23% of victims no longer use the retail website where they purchased the goods) it’s vital that they apply scrutiny to their potential partners. Focusing on security capabilities is just as necessary as smooth transaction flows.
But as the quest for seamless user experience has taken priority, (21% cite it as a reason for using BNPL services), fraud prevention has taken something of a back seat. As the industry grows, this won’t be a sustainable approach, as the research shows.
Banking and BNPL
Given the benefits, it’s easy to understand why banks and other financial organisations are now looking at ways in which they can adapt existing offerings or develop new ones to meet this increased demand.
Many banks are seeing how such products provide opportunities for customer retention, acquisition and growth in revenue lines, such as the potential for cross-selling across product lines and building relationships with their merchant base.
The benefits of developing a BNPL position are lucrative for financial organizations, but the risks need to be mitigated. Many financial organizations will be well-versed in robust security, but may lack the streamlined checkout experiences of their BNPL counterparts. With 21% of global consumers citing UX as a reason to use multiple BNPL providers, both security and UX are key to success.
BNPL Providers
For BNPL providers, the research confirms that fraud is already a challenge that should be addressed. As more consumers fall victim to BNPL fraud, consumer trust is likely to diminish, leading to a decline in both customers and willing merchant partners in the long run.
With only 42% of consumers trusting BNPL providers to protect them from fraud, there is room for improvement.
One in eight BNPL users have been a victim of fraud
The figures speak for themselves. Globally, one in eight BNPL users have been a victim of fraud. If we factor in generational breakdowns, those aged between 18-34 are disproportionately more likely to be a victim of fraud (59%).
And, when the same lens is applied to gender, we also see a considerable shift. While the majority of BNPL users are female (accounting for 58% ), 52% of fraud victims are male
Types of BNPL fraud
BNPL fraud is widespread across a number of vectors. The types of fraud encountered span across synthetic identities (or fake account creation) and account takeover fraud (ATO).
When asked about account security, more than three quarters (76%) reuse the same email and password, with 42% admitting to using the same email and password across all providers.
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