Securing the Future of Buy Now Pay Later: Countering Fraud with Kount

Editor's note: This article was written by Shivam Natani, an esteemed analyst at Quadrant Knowledge Solutions. You can find the original publication on the Quadrant blog.

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Imagine this scenario: You have your eye on the latest gadget, but your wallet isn't quite up to the task. That's where Buy Now Pay Later (BNPL) steps in to save the day! BNPL is a form of short-term financing that allows consumers to make purchases and delay payment, typically without accruing interest. With BNPL, consumers enjoy the convenience of acquiring a product and spreading out payments over time after an initial upfront payment. During the holiday season, BNPL has witnessed a substantial surge in popularity as consumers shift their focus towards acquiring high-value items.

The adoption of Buy Now Pay Later (BNPL) is witnessing exponential growth in 2023 as it is helping eCommerce platform boost their sales by increasing the buying power of customers. After the COVID-19 pandemic, BNPL usage skyrocketed. Why? Well, because the world went digital at lightning speed, and there are more young shoppers than ever before. The rapid adoption of BNPL is because of the financial flexibility it offers to customers. The Gen Z customers prefer purchasing high ticket items using BNPL credit option. The main advantage of BNPL is customers get relaxation about hidden charges and high interest-fees of credit cards. BNPL is also referred to as point-of-sale installment loans.

• eCommerce retailers are progressively incorporating BNPL as a payment alternative for various significant factors: It boosts sales of high-ticket items.
• It increases customer lifetime value (CLTV)
• It shifts fraud liability to BNPL providers.
• It offers flexible payment options and attracts new customers.
• eCommerce merchants get paid immediately, as BNPL providers transfer payments right after the purchase is made.

BNPL options are quite popular in the holiday season, but the rise in demand for BNPL is also attracting a lot of fraudsters trying to exploit the vulnerabilities in the process. Fraudsters exploit the deferred payment nature of BNPL using stolen identities, fake accounts, and compromised credit card information. Common BNPL frauds include synthetic identity theft, account takeovers, return abuse, friendly fraud, and triangulation fraud. Fraudsters have identified a loophole in BNPL transactions, whereby they exploit the flexibility to make a minimal initial payment by using stolen credit cards with lower limits when purchasing expensive items. This allows them to engage in fraud transactions without raising immediate suspicion due to the lower upfront payment, ultimately causing financial losses and security concerns for both consumers and businesses.

eCommerce merchants tend to shift the responsibility to BNPL providers, but they must be cautious about the impact of such frauds on brand equity and customer loyalty. eCommerce businesses can enhance their fraud prevention efforts and build stronger strategic partnerships by collaborating closely with Buy Now Pay Later (BNPL) service providers. To combat BNPL fraud, eCommerce fraud prevention vendors are coming up with new strategies from both the merchant and BNPL provider perspectives.

Kount’s eCommerce fraud prevention solution offers robust fraud detection software that combines supervised and unsupervised machine learning models. This technology effectively identifies various fraud patterns, including ATO incidents, new account fraud, bot attacks, friendly fraud, payment token switching, shot gunning scams and bust outs, etc. Kount offers a payment method-agnostic approach using existing solutions and seamlessly integrates with the BNPL payment option. One of its standout offerings, Kount Account Protection, is specifically designed to combat BNPL fraud when customers log in. It leverages a robust data network and advanced machine learning models, with a particular focus on countering Account Takeover (ATO) incidents. Kount fraud prevention solution covers the pre-and- post-authorization stage to correctly identify bad actors and detect any type of anomalies in the transactions. The advantage of Kount 360 solution lies in its ability to merge both physical and digital identities, offering a comprehensive perspective on a customer and assessing the risk associated with individual transactions. After acquiring the Midigator platform, Kount has streamlined its product offerings into a platform known as Kount-360. This integration enables a seamless end-to-end customer journey, bringing together all the necessary components in a unified platform. Kount helps eCommerce merchants increase Customer Lifetime Value (CLTV) by providing a seamless BNPL transaction experience to customers.

According to Analyst Shivam Natani, Quadrant Knowledge Solutions, “Kount's eCommerce Fraud Prevention solution presents a holistic strategy for combating BNPL fraud. This approach combines both physical and digital identity aspects to conduct a thorough risk evaluation, rendering it a valuable resource in upholding secure and frictionless online shopping encounters. Kount helps merchants in identifying fraudulent activities across the entire customer journey by leveraging its advanced AI-ML models and extensive network.”