Buy Now, Pay Later or BNPL is a payment type of short-term financing that enables consumers to make purchases and pay for them at a later date, usually interest-free. This form of payment is also referred to as point of sale installment loans, and they are becoming an increasingly popular payment option, especially for online shopping.
BNPL fraud takes place when a scammer uses an existing BNPL account to make unauthorized purchases or steals someone’s personal and financial information to open a new BNPL account. Companies like Klarna and Affirm offer buy now, pay later financing on purchases made from participating merchants that partner with BNPL providers while PayPal has introduced its own point of sale installment loan program.
How does Buy Now, Pay Later work?
Buy now, pay later programs aren't all the same as each company has its own terms and conditions. Generally, point of sale installment loans operate along these lines:
- You purchase an item at a participating retailer and choose buy now, pay later at checkout.
- If approved (you’re notified instantly), you put down a small amount, such as 25% of the overall purchase total.
- You then pay off the remaining balance in a series of interest-free installments.
- You can pay by check or bank transfer and payments can be automatically deducted from your bank account.
What are the types of fraud in the Buy Now, Pay Later space?
The first type of fraud is Synthetic Identity Fraud, where scammers steal pieces of information from real people like their name, birthday, social security number, etc. to create an identity that they can use to buy goods and services. They receive what they “purchased” almost immediately, with no intention of repaying the loan. Since they created a false identity to make the purchase, there’s no effective way to track them down.
The second type of fraud scammers are performing is Account Takeover Fraud which occurs when a scammer obtains a BNPL user’s login, either by easily convincing them into revealing it or by buying it online. Once the fraudster logs in to a legitimate BNPL account, they can purchase anything, from expensive electronic devices to gas and groceries. The consumer whose account has been exploited to buy these items doesn’t know it until the payments are due weeks or even months later.
How do I report Buy Now, Pay Later fraud?
- If you believe that you may have fallen victim to fraud, immediately report the unauthorized purchase(s) to the Buy Now, Pay Later company where it occurred
- Change your BNPL login credentials immediately
- Report the unauthorized purchase and fraud to local authorities and your bank
Remember, in order to prevent falling for Buy Now, Pay Later fraud or any other type of scams, it’s crucial to keep your personal and financial information safe. Be sure to keep a close eye on your BNPL account, bank and credit card statements to make sure you’re only paying for an item you’ve actually purchased. For more tips on protecting your information, read more of our Privacy & Cybersecurity blogs.