Any new payment vector, where the growth of the hockey stick is apparent – top and right, of course – attracts the attention of fraudsters.

David Excelfounder and president of Featured spacetold PYMNTS that the explosive growth inherent in buy-now-pay-later (BNPL) transactions has prompted bad actors to be particularly creative in how they attempt to game the system.

A recent study by PYMNTS shows that up to 50 million consumers have used BNPL options in the past 12 months. The payment option has proven particularly attractive to younger users, including millennials, who have recently shunned traditional credit card debt as interest rates soar.

While there is always the risk of consumers over-engaging in debt and payments that they cannot easily digest, new risks are looming on the horizon.

As Excell warned PYMNTS, BNPL requires supporting a huge amount of data that needs to be mined in order to make loans available to consumers. This same data collection can ultimately manifest itself in positive revenue torque – and increased sales conversions – for merchants and vendors who offer BNPL to their end customers.

“Watch All Edges”

However, fraudsters are “looking at all the edges” to find points of vulnerability and attack.

In fact, as Excell put it, “BNPL is starting to look a lot like traditional finance and banking – we see a lot of the same fraud mechanisms.”

He pointed to claim fraud and account takeover as major vectors of the crime itself, as fraudsters can set up installment loans that steal goods and services from merchants or defraud lenders. on the loans themselves, which ultimately have to be cancelled.

Sometimes, he said, the merchant can also be held liable if there is an inherent security vulnerability in the online storefront itself. The consumer could also be impacted by lower credit scores in the future, as installment plans appear on their reports that were taken out in their name, are not paid off, and may have slipped past them.

Related: BNPL’s travel and hospitality options grow as the sector faces a new enemy – inflation

The risks of “fraudulent collusion”

There are also other risks in the mix, Excell said. There is always the risk that over-indebted consumers may not be able to repay.

Little by little, he said, we are seeing the rise of “fraudulent collusion” – where unscrupulous merchants and consumers work together to set up online shops to take out and facilitate BNPL loans.

In terms of mechanics, he said, the collusion essentially tricks the BNPL organization into believing that there is a legitimate merchant in place shipping goods – in orders that don’t actually materialize.

“If you try an BNPL program and you’re successful,” Excell said, “you’re actually able to monetize that account takeover.” In this context, he said, the merchant has an incentive to ensure that they protect both their own credentials and those of their customers at the point of payment.

Looking ahead, Excell said, there is no denying that we will see BNPL transactions continue to grow in popularity – and traditional financial instructions will increasingly roll out their own offerings.

Open banking, he said, will prove to be an essential means of obtaining additional consumer data, verifying information and protecting it throughout the transaction. Experian, he said, is also launching a BNPL desk that can help determine creditworthiness and track how individuals use the option over time.

But until then, he said, “just as we look at the world of merchant acquiring, where we have to make sure that the merchants themselves aren’t the fraudsters, now we have to do the same. for BNPL as well.”

See also: The CFPB and the BNPL: 3 things to watch out for