Buy Now Pay Later, the Next Frontier of Consumer Credit




The Buy Now Pay Later (BNPL) model has been gaining momentum for some time now and shows no signs of slowing down. The move to an online only lifestyle during the pandemic has led to a huge and vastly accelerated increase in online service usage with the BNPL market front and centre in this digital explosion.

 

Over half (52%) of BNPL users have used these services more during the COVID-19 period Source: https://www.finder.com/uk/buy-now-pay-later-statistics

 

The ‘buy now pay later’, or more accurately, ‘buy now and spread the payments’ model has been gaining popularity amongst global shoppers with Millennials (60% using BNPL) and GenZ (58% using BNPL) shoppers being particularly enthusiastic adopters.

This is not completely surprising, with providers such as Klarna, Clearpay and Laybuy creating a very active presence on social media, thus marketing themselves through targeted ad campaigns to Millennials and Gen Z directly.

Although the adoption of BNPL has been slower in older demographics, data shows that the figures are rising across all age groups, with 31% of Gen Xers saying that they have used BNPL services in the last year.

 

The rise in living costs and ‘buy now pay later’

With inflation continuing to rise and people starting to feel the squeeze on their finances, shoppers are increasingly turning to BNPL in order to spread the cost of their purchases over a longer period, often without having to pay interest.

For example, typically, consumers are given the option to pay for their purchases in four interest-free instalments or within a 30 day period, so as long as payments are made to the agreed schedule then no interest will be incurred. Also, with both payment options only requiring a ‘soft credit check’, the consumer’s credit score is not affected and if the check is successful then the customer can pay with BNPL instantly.

This flexible payment option is becoming an extremely important part of the purchase decision making process for consumers, with online deal comparison site Finder.com reporting that 10 million UK shoppers avoided shopping with merchants that didn’t offer this service at checkout.

On the flip side, unfortunately BNPL services aren’t just proving popular with consumers, they’re also proving to be a hit with criminals.

 

Is Buy Now Pay Later affected by Fraud?

With the ever growing uptake of BNPL as a way to manage purchase payments, there has been an equally dramatic rise in BNPL fraud.

Using a combination of techniques including SIM card cloning, phishing and credential stuffing, fraudsters are taking advantage of the soft, user-friendly checks used in BNPL application processes, using clever tactics to slip through undetected to fraudulently take money and goods from both consumers and retailers.

And it’s not solely new account applications that are targeted – existing accounts can prove even more profitable for criminals. An existing account with a good history can have a much higher credit limit, as spending limits usually increase with account age and transaction volume.

To combat this, BNPL providers need a frictionless, secure defence against fraud, a real-time check that enables genuine applicants and customers to transact, whilst keeping out the bad guys. Without fraud guards, BNPL providers run the risk of losing customers who might then fall back on other payment methods, such as credit cards, that may have stronger fraud protection methods by comparison.

 

The Future is Bright

The future is mobile; the COVID-19 pandemic has highlighted just how important financial flexibility is and with eCommerce continuing to grow, the BNPL industry will follow suit. Instant credit, deferred payment arrangements and low credit cost create an extremely appealing package for consumers, and mobile devices are now the preferred route to consume.

The good news is that even in the high-volume world of online services, BNPL and other payments providers are able to rely on secure, seamless mobile identity checks to verify user identity, silently authenticate users into apps and websites and check for fraud signals without impacting the user journey. Genuine BNPL customers are able to purchase and pay, while those with less honest intentions can be stopped at the door.