In recent years, the payment sector has taken many forms from digital transactions to Buy Now Pay Later (BNPL) solutions. Considering its advantages, these service providers’ market worth was valued at $141.8 billion in 2021. Furthermore, it is predicted to increase by 33.3% till 2026. Along with its exponential growth, the BNPL sector is facing severe criticism. Primarily due to its weak regulatory compliance controls, customers create huge debts, account takeovers, and identity theft.
The increasing fraud risks are hindering the growth of BNPL service providers while attracting regulatory scrutiny. The Financial Conduct Authority (FCA) raised a concern regarding the creation of stringent regulations to combat payment fraud. This article highlights how identity verification services increase caution for illicit actions along with regulatory compliance.
Synthetic Identity Fraud – Barricading BNPL Sector’s Growth
Regulatory watchdogs are scrutinizing almost every sector from banks and insurance to art dealerships considering the increase in financial crimes. Fraudsters often choose industries where they can easily hide their illicit funds. In this case, the BNPL sector is a prime target for committing synthetic identity fraud. Criminals make purchases under someone else’s name or flee with products in return creating a huge debt. Creating counterfeit profiles with stolen information and credit/debit card details is another instance of fraud.
Fraudsters make malicious purchases and push legitimate accounts or cardholders into debt of which they are unaware. Later they have to clear outstanding payments. Similarly, in case of a legal claim, the respective BNPL service providers clear the debts. As a result, they face a hefty financial backdrop affecting their overall financial stability. Inadequate ID verification mechanisms are one of the main causes of the increasing vulnerability of the BNPL sector.
To protect customers from plunging into debt and affecting their credit scores, BNPL service providers require efficient identity authentication solutions. The advanced IDV services help them escape the defaulter list as well as compliance risks.
Financial Conduct Authority (FCA)’s Guidelines
The BNPL service providers are facing criticism as they lack sufficient identity theft prevention mechanisms. After the FCA reviewed unsecured financial firms’ performance in June 2022, it identified inadequate ID verification checks as the major cause behind the illicit actions increase. As a result, this regulatory body exclaimed a reduction in leniency for compliance and consumer protection.
FCA further obliges BNPL companies to strengthen their fraud prevention control by integrating identity verification services. As it is directly regulatory these service providers, startups like Clearpay, Laybuy, and Klarna are implementing robust IDV solutions to detect and prevent external criminal threats.
Identity Theft Protection – A Crucial Step in Preventing BNPL Fraud
The increase in payment fraud is forcing regulatory watchdogs to place more stringent legal measures in place for not only protecting customers’ profiles but also the integrity of financial service providers. In this regard, ID verification solutions are enabling BNPL companies to strengthen their game against criminals. By countering their malicious intentions through real-time presence checks and liveness detection, they can safeguard pay-later methods.
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Secure Customer Onboarding
Criminals use false information to bypass identity authentication and conceal their illicit funds, making it challenging for online payment service providers to track purchase trails. Therefore, BNPL companies need to integrate robust IDV checks for preventing onboarding of fraudsters in the first place.
AI-powered biometric identity verification systems offer real-time presence assurance, multi-factor authentication, document validation, ongoing monitoring, and liveness detection. Furthermore, BNPL service providers can cross-check payments with facial features eliminating pay-later services exploitation.
Phishing Attacks Detection
Phishing attacks are increasingly becoming popular in the BNPL sectors due to the availability of advanced identity authentication breaching tactics. By stealing information from customers regarding their credit/debit card CVVs, account log-ins, and other PII, they pay for illicit purchases by camouflaging true identities. On the contrary, AI-powered identity verification services place restrictions in fraudsters’ way by cross-matching profiles across global registers and databases.
In Summation
BNPL services are a go-to option for the majority of customers who have scarce resources for making a purchase. However, fraudsters also use them as easier ways to hide their illicit funds. AI-powered ID verification solutions drive protection against criminal intentions by safeguarding BNPL companies from malicious purchases.
With robust identity theft protection checks in place, these service providers can ensure compliance with FCA’s guidelines and attain financial stability. Moreover, ID verification services cut down additional operational costs, enhance customer experience, and put sufficient crime-deterring controls in the BNPL companies.
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