Cybercriminals and the Fraud Threat of Buy Now, Pay Later

The second half of 2021 saw 35.5 billion online transactions processed with a global growth in volume of 44 percent year-over-year (YoY), according to a recent LexisNexis® Risk Solutions study. The study illustrated that accelerated digitalization, fueled by the pandemic, continues across a multitude of different demographics and geographies. This change in consumer mentality and behavior has in turn led to new fraud and identity threats. Due to the pandemic, more people than ever before have switched to online options for their entertainment, shopping, finance management, working and learning.

Unfortunately, cyber fraudsters have also adapted to this new way of life. Always trying to stay ahead of the curve, fraudsters took advantage of the online presence of more and more consumers. Cybercriminal organizations devised advanced methods to scam and steal data, which created new threats for internet users.

The Buy Now, Pay Later Laws of Attraction

As consumer habits shifted to online shopping and resource constraints arose from the pandemic, buy now, pay later (BNPL) emerged as an efficient way to shop and pay for services. BNPL lets users spread the cost of their purchases over a series of interest-free installments.

Pioneered by firms such as Klarna and Afterpay, BNPL is now booming globally. In fact, major global players such as Paypal, Amazon.com, and Apple are jumping on the bandwagon as well. As more consumers have chosen to shop using BNPL, more financial technology firms have followed the trend and now offer this new payment method to consumers. This new payment method allows for impulsive purchases, which opens up opportunities for fraudsters to interfere while the consumer’s attention is elsewhere.

As the BNPL model has gained traction, fraudsters didn't take long to get on board. BNPL created an avenue for fraudsters to explore new types of scams. Fraudsters are now trying to exploit the fact that they can walk away with goods at either a fraction of the retail price or in some cases at zero cost.

Stolen credentials also are key assets for fraudsters in BNPL scams. After purchasing lists of credit card credentials on the dark web, they try to maximize the gain on each card. BNPL allows them to multiply the capacity of a card because the authorizations happen on only a fraction of the value of the goods. Without the right fraud prevention measures in place, BNPL is a prime target for fraudsters in the payment ecosystem.

A Multilayered Fraud Defense Creates Trust

One of the best ways for businesses to protect themselves from such scams is to create an efficient and seamless process to determine which customers are trustworthy. Know your customer (KYC) schemes, two-factor authentication and good profiling of trusted customers can be the solution to unmask relentless scammers. Businesses prioritizing identity trust tend to experience less fraud. A dynamic, multilayered fraud defense creates a significant deterrent for cybercriminals.

Cybercriminals are smart, coming up with complex schemes to fool consumers. Social engineering allows them to deter identity authentication defenses and find a Trojan horse to pursue their scam. Once the fraudster detains credentials belonging to their victim, they use social engineering to pass the double factor authentication gate by getting in touch with the account holder under false pretenses. The victims assume the fraudster is a trusted source and finally give away the last pieces of the puzzle, unaware of the scam. At this point, it's all over — the cybercriminal holds all the cards.

Can We BNPL Without Risk?

Businesses and consumers alike are becoming more and more aware of the risks. They can close the door to opportunistic fraudsters by raising awareness with new online users of how to protect themselves from cybercrime.

There's no such thing as zero risk in terms of fraud. Cybercriminals always seem to be ahead of the game, monitoring new trends closely to create new ways to deceive consumers and businesses. The new BNPL trend is one of the many examples of how quickly criminals can jump on the bandwagon.

The businesses that succeed and thrive in the midst of this uncertainty and risk surrounding BNPL will be those that shore up their fraud defenses without unnecessarily impacting customer experience. This means having the ability to track current and evolving consumer behavior across the online customer journey and using intelligence from every interaction to better identify, model and predict future trust and risk.

Maanas Godugunur is the director of fraud and identity at LexisNexis® Risk Solutions, a leader in providing essential information to help customers across industry and government assess, predict and manage risk.