Buy now, pay later (BNPL) services have grown to a market value of more than $30 billion, driven largely by consumer demand for more flexible, convenient payment options. These services allow customers to split their purchases into more manageable, often interest-free, payments making them a popular alternative to credit cards.

BNPL services, along with Google Pay, Apple Pay, PayPal, Venmo, and the like, have expanded online payment choices to suit a wider range of consumers. And while this helps e-commerce businesses drive more sales, it also raises new fraud concerns.

So, what does the future of BNPL look like, and how does it impact e-commerce fraud? Below, we’ll take a closer look at the industry and what you can do to protect your business and customers against BNPL fraud.

The buy now, pay later market will continue to grow at a rapid rate

The BNPL market will likely see further substantial growth in the coming years as shoppers continue looking for simple and affordable payment plans, and as more e-commerce stores add BNPL as a flexible payment option. Leading market share providers, like Affirm, Klarna, Sezzle, and Afterpay, have been rising in popularity the past few years and are now leaders in the industry.

BNPL’s growing popularity makes it a bigger target for fraud

As BNPL continues to gain traction, it has become a prime target for fraudsters who want to exploit its potential vulnerabilities.

Because BNPL is easy to use and has more limited credit checks with credit bureaus, it means there are more opportunities for fraudulent activities like identity theft, use of synthetic identities, and account takeover attacks. As more consumers adopt BNPL, the potential for fraud will grow as well.

Proactively fighting against BNPL fraud is essential to protect your business and customers. It starts with implementing fraud detection measures to look for suspicious activity (e.g., multiple login locations, suspicious purchases, incorrect shipping addresses, etc.).

Consumers trust BNPL services more than credit card providers

Transparency is one of the biggest advantages BNPL financial service providers offer over traditional payment methods like credit cards. You don’t need to worry about changing terms and swings in interest rates — you get straightforward terms with no hidden fees. So it’s no surprise that 35% of consumers say they plan to use BNPL lenders throughout the remainder of the year.

Traditional credit cards don’t offer as much flexibility and typically come with higher interest rates and complex fee structures. They also have less transparent policies, which leads to lower trust and more skepticism (one reason why less than a quarter of consumers trust credit card companies). 

Gen Z uses BNPL more than any other generation

Now that BNPL payments have been around for a few years, especially in the United States, Chinese, Australian, and European markets, some trends are starting to emerge about who’s using them the most. 

For starters, reports show that Gen Z is the most common demographic to take advantage of BNPL, with an estimated 46.5% of them using these services in 2023. Gen Z looks for ease of use and a great customer experience, which aligns perfectly with what BNPL services offer.

BNPL is also becoming more common among Millenials — nearly 40% of them are also BNPL users. Older generations, however, are slower to hop on the bandwagon, with Gen X and Baby Boomers still preferring more traditional payment methods.

Younger generations are also less likely to fall for basic scam tactics like phishing attempts

Millennials and Gen Z, being more tech-savvy, are generally less susceptible to basic scams like phishing compared to older generations. For example, they typically know what to look for in an email that may indicate the message was sent by a fraudster.

But that doesn’t make them immune to new types of fraud—especially those associated with BNPL services, especially since fraudsters are evolving their strategies to take advantage of the growing user base of BNPL products. Bad actors are now combining tactics, such as synthetic identity fraud and account takeover attacks, to make fraudulent purchases. Additionally, younger generations tend to overshare information online, which gives fraudsters more data points to use.

For businesses, this creates a complex challenge. Each successful fraud attempt not only results in an immediate financial loss from chargebacks and stolen merchandise, but also damages the brand’s reputation. Ultimately, this can lead to long-term revenue decline as customers lose trust in the brand and switch to competitors.

Preventing BNPL fraud with a device intelligence solution

BNPL’s rapid transaction approvals and minimal data collection from customers make it harder to use traditional methods like multifactor authentication (MFA) to prevent fraud. While CAPTCHA, MFA and one-time passwords (OTP) can be effective as part of an overall fraud prevention strategy, they also add friction points that detract from the customer experience.

Device intelligence is a technology that works in the background to identify devices accessing online platforms. It collects data from those devices to provide actionable insights that risk and fraud teams can use to make better-informed decisions that can help prevent fraud without negatively affecting the experience for legitimate customers.

How does device intelligence combat BNPL fraud?

Device intelligence is a powerful fintech tool in the fight against BNPL fraud by helping you identify suspicious activity and block it before fraud occurs. 

Protect customer’s PII

Given how quick and easy it is to obtain approvals for BNPL loans, identity theft is a big risk with these services. BNPL often requires minimal customer information and uses soft credit checks to expedite transactions, which means fraudsters may find it easier to use stolen or synthetic data to make unauthorized purchases.

In short, device intelligence helps businesses ensure that users are who they say they are. It analyzes the unique attributes of user devices to identify anomalies. For example, a device intelligence tool may detect a device that creates multiple accounts with different identities or find discrepancies in geolocation data. 

The software will flag these occurrences in real time to block potential fraud without any friction in the checkout process, giving your team time to analyze the problem and stop stolen PII from being used.

Avoid first-party payment fraud attempts

First-party payment fraud occurs when individuals use their own identities to make purchases — with no intention of fulfilling their payment obligations. For example, they might claim a purchase never arrived, commit chargeback fraud, or simply not pay future installments. “Buy now, pay later” amplifies this problem because fraudsters can take advantage of the deferred payment structure to get the goods they want right now and skip all future payments, resulting in revenue loss for the retailer.

Device intelligence solutions like Fingerprint can help you spot and prevent this type of fraud. Using device intelligence, you can detect devices that may have engaged in payment fraud in the past, and flag those transactions as suspicious or stop them from going through.

Key takeaways: Protect your customers (and your bottom line) with Fingerprint

Device intelligence solutions have become essential for preventing BNPL fraud and safeguarding your business. This technology not only helps stop BNPL fraud but can also help stop account takeover attacks, credit card fraud, and fraudulent account creation. 

Fingerprint excels at detecting and preventing multiple types of online fraud by analyzing unique device identifiers and behavior patterns. Learn more about how Fingerprint can help your business proactively stop payment fraud, including BNPL fraud.