This has led to concerns that BNPL plans are encouraging consumers to live beyond their means. The key selling point for merchants is that they often see their sales volumes increase as a result. Companies like Klarna and Afterpay charge retailers a small fee on all transactions processed through their platforms. Unlike credit card companies, the bulk of BNPL companies' revenue comes from merchants. "There's going to be a huge amount of fraud hidden in there because they always lower their security checks during those events because they don't want it to impact sales," Gosschalk said. Warnings of BNPL fraud are particularly timely as Black Friday kicks off the critical holiday shopping season next week. "If you want to survive in the payments business, you must grow very quickly," Rehak said. The firm's customers include the likes of Microsoft and PayPal, the latter of which offers its own BNPL product.Įxperts say another reason BNPL systems are being targeted is their popularity - it's much easier to go unnoticed when there's a sea of other people applying for credit. He gave the example of criminals getting PlayStation 5 consoles on BNPL and flipping them at much higher prices online to make a profit.īecause BNPL services let users spread their purchases across four equal installments, fraudsters are able to pay just 25% base value - about $125 for a PS5 - and avoid paying back the rest, Arkose Labs' CEO said.Īrkose Labs says its main clientele consists of financial institutions, tech giants and video game companies. are using such services to exploit supply shortages. Klarna refuted claims that its fraud checks and controls were more lax than that of banks, while Afterpay said it has "extensive back-end fraud processes" in place to verify new users. "They have much lower controls than the big banks that have been around for many years on the security side, so it makes them a good target." "Fintechs are very lucrative because they're typically fast-growing, early-stage companies," he told CNBC. Kevin Gosschalk, founder and CEO of American fraud-prevention start-up Arkose Labs, said criminals are increasingly targeting BNPL platforms as they have "softer" controls than the big banks and credit card companies. "There is always a way to exploit this and basically steal from you using someone else's mistake." Retailers working with BNPL platforms "categorize things differently," Rehak said, adding that this can lead to inconsistency. Many companies in the industry don't conduct formal credit checks, instead using internal algorithms to determine creditworthiness based on the information they have available to them. One of the vulnerabilities, Rehak says, is BNPL firms' reliance on data for approving new clients. "You can already see crime on multiple levels."Ĭriminal gangs are exploiting weaknesses in the application process for BNPL loans, experts say, using clever tactics to slip through undetected and steal items ranging from pizza and booze to video game consoles. "Criminals love buy now, pay later," Martin Rehak, CEO and co-founder of Czech fraud detection start-up Resistant AI, told CNBC. and Europe, and generated almost $100 billion in transactions globally in 2020 alone. They've become massively popular in the U.S. Personal Loans for 670 Credit Score or LowerīNPL products let shoppers split the cost of their purchases over three or four months, often interest-free. Personal Loans for 580 Credit Score or Lower Best Debt Consolidation Loans for Bad Credit
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