The Buy Now Pay Later (BNPL) sector has seen tremendous growth in the last couple of years. Especially because it is giving customers an option to pay for things later that they buy right now. But the service providers and the sector itself have faced some criticism from consumer interest groups and Financial Conduct Authority (FCA).
There are huge concerns that consumers could build up large debts by spending more than they can afford to pay back. There’s also a worry that fraudsters could target companies that offer these services to do some fraud.
With the help of stolen identity data, fraudsters can open up accounts and make purchases with no intention of paying back. Moreover, if an organization doesn’t have enough security measures in place, fraudsters can easily rack up huge debts.
With ID theft cases on the rise, customers who have done no harm may be liable to pay amounts that they haven’t used. Having a dark spot on their resume also impacts a user’s ability to secure a loan or mortgage in the future. Even if their identities were stolen, they didn’t go into debt themselves.
FCA’s Review of the BNPL Industry
With this growing concern, FCA evaluated the unsecured credit market in 2022 and is now coming up with regulations that will protect customers and businesses from fraud.
Unregulated providers will have to comply with regulations set by FCA to continue working. For Buy Now Pay Later startups, protecting themselves and their customers is now one of the biggest concerns.
That’s not the only thing that BNPL providers have to protect, they also have to protect their reputation. In a new and growing sector, winning the trust of customers is crucial for growth.
To minimize the risk of ID fraud, many companies have to review their operations and make changed to comply with the strict requirements of AML and KYC. This will also mean making greater use of ID verification services. Businesses also need to carry out sophisticated checks every time a user chooses to use the services.
ID verification checks also help Buy Now Pay Later companies to successfully verify customers that may be spending more than they should or customers who may have trouble paying back.
BNPL companies should also look forward to protecting customers, verifying affordability, and other factors.
What BNPL Companies Need to Know About ID Verification?
BNPL companies can use ID verification services to check if their customers are who they claim to be. Know your customer checks have to validate a customer’s personal information.
While onboarding a new customer, BNPL companies should conduct KYC checks. The same level of due diligence must be applied when a customer is making a high-value purchase or making changes in their delivery address.
In these cases, a customer may be asked to provide valid ID proof or to enter a unique code sent to the customer’s email ID.
Why Identity Verification for BNPL Services is Important?
ID fraud makes up around 61% of all fraud cases reported to the UK’s National Fraud Database. ID fraud cases have grown by 32% in the last 5 years. Online banks and sellers are common targets for fraudsters. BNPL companies are also increasingly being targeted by fraudsters.
Common attacks include phishing attacks to obtain users’ log-in details, creating new accounts with stolen payment cards, and account takeover fraud.
This in turn destroys trust in Buy Now Pay Later companies and hurts the growth of the industry. To be able to establish trust in the industry, businesses need to verify ID verification services.