Fraud in BNPL (Buy Now Pay Later): Detection & Preventio

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Fraud in BNPL (Buy Now Pay Later): Detection & Preventio

BNPL or Buy Now Pay Later has all the makings to reinvigorate eCommerce, as this model allows customers to buy online much easier than using credit card loans, and grants merchants access to a much wider audience of potential clients. Due to this, more than 45% of US customers have used BNPL at least once as of 2022, and they plan on continuing doing so. Across the little pond, UK customers have spent above 2.3 billion GBP during the 2021 holiday season through Buy Now, Pay later platforms like Klarna Bank AB.

The problem with BNPL is that it is a new and largely unregulated approach, so BNPL vendors try to maximize their profits by streamlining customer experience and neglecting credit history checks and other anti-fraud tools.

As a result, fraud detection and prevention can become a problem for “buy now, pay later” platforms. This happened to Afterpay LTD, a leading BNPL provider in Australia, who faced an outrage of synthetic identity theft, which lead to significant financial and reputational losses. While EU countries like Belgium, where BNPL is currently booming, did not face this challenge yet, their US counterparts like Affirm are already reporting a surge of synthetic identity fraud. 

All of this means that if you are going to delve into the BNPL business or partner with such platforms, you should think about fraud detection in advance. To secure your business, it’s good to have a reliable anti-fraud system in place, and Covery can be a perfect fit. Read on to learn how Covery helps with synthetic identity fraud prevention in the BNPL domain.

Who uses BNPL the most?

As we mentioned, US and Sweden currently have the largest BNPL customer base. There are more than 150 mln of active users on the Swedish Klarna Bank AB platform, and at least 56% of Americans used some Buy Now Pay Later service more than once as of 2022, a growth of 48% over the previous year. Chinese and Indian BNPL markets grow rapidly as well, along with Australia, Malaysia, and South America.

The reasons are simple — people can buy the items they need at once and pay the cost to the BNPL platform in small interest-free increments over some period. Merchants get all the sum upfront and stay on the safe side, as clients pay to BNPL vendors, not to them, so all the chargebacks also go there.

What happens if you don’t pay buy now, pay later?

The BNPL vendor bears this risk, and they try to secure themselves through commissions. On average, buy now pay later platforms charge 2% of item cost from merchants and up to 8% from customers, to cover for potential fraud and non-payments. With the economy of scale, it has worked thus far, and the BNPL vendors simply blocked the accounts that turned out to be synthetic identity fraud cases.

However, don’t think customers can go completely under the radar using synthetic identities. There are means for fraud detection and prevention in such cases, which are already being implemented worldwide and start bearing fruit.

What is fraud in BNPL payments?

BNPL fraud lies within the general CNP fraud domain, so in simple words, the most widespread fraud in the buy now, pay later industry involves synthetic identities, account takeovers, and fraudulent chargebacks. Scammers create fake identities, steal credentials of real BNPL customers through phishing, or buy them on the Dark Web. While the fraud rates here are still lower than with traditional bank institutions, their growth rates are definitely higher, according to a fraud prevention expert cited in the article above.

How to detect and prevent BNPL fraud then? The solution is quite simple, actually — enforce KYC/KYB procedures and other anti-fraud checks manually, even though they are not required by the law as of yet. If you wait till the regulators enforce you to do something, it might be too late for your business to recover from the aftermath.

Covery antifraud system helps fight BNPL fraud

At its core, buy now, pay later fraud does not differ from any other CNP online fraud we are well-equipped to deal with. Covery provides a wide array of capabilities for account takeover preventionsynthetic identity fraud detection and removal, and handling chargebacks. Most importantly, due to the in-depth transaction monitoring system, we can identify high-risk transactions on the fly and decline them before they become costly chargeback disputes.

Here is how it works:

  • Account takeover detection. Covery combines behavioral analysis, device fingerprinting, and Trustchain reputational records to identify account takeover cases on the fly, freeze access to compromised accounts and help affected customers recover.
  • Synthetic identity fraud prevention. Through detailed client verification and automated KYC/KYB during customer onboarding, we can ensure successful customer validation and minimize the risk of synthetic identity fraud happening at your website.
  • Chargeback management. Due to integration with Visa/Verifi Order Insight system and implementation of Visa RDR feature, Covery can ensure successful chargeback case resolution in your favor and general reduction of fraud cases by up to 80%. Alternatively, we can employ Ethoca chargeback alerts for automated refunds that do not result in chargeback ration changes and save you money on disputes and payment processing fees.

As you can see, BNPL offers great opportunities but comes with certain risks. Being prepared to deal with them will help you ensure successful BNPL model implementation for your business and will secure your revenues.


BNPL approach is here to stay, as it is too good of a tool for all the parties involved. However, it is a dual-edged sword, so you must be prepared to handle the fraud risks of the buy now, pay later business model.

Covery provides reliable anti-fraud tools that help businesses monitor their clients at every step of their customer journey. As a result, we ensure timely fraud detection and prevention in order to minimize your potential losses and streamline your operational efficiency.

To delve deeper into what Covery antifraud system does and how it can help you fight off online fraud, order a free demo and take a look at all features we provide!