AML Strategies for BNPL Companies: Securing the Future of a Booming Industry

Viktor Restofte - Head of sales at Uniify

By Viktor Restofte on

Oct 09, 2024

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4 minutes

In the current climate of credit-driven consumer behavior, the Buy Now, Pay Later (BNPL) model has emerged as a revolutionary force, reshaping the world of online shopping. BNPL, an innovative solution that allows consumers to acquire goods with a minimal down payment and pay the balance over a specified period often without interest, has seen a massive surge in popularity.

This trend was particularly noticeable during the COVID-19 pandemic and shows no signs of abating. However, with this rise in popularity comes unique challenges, including a significant increase in fraudulent practices. These challenges highlight the need for robust Anti-Money Laundering (AML) and Know Your Customer (KYC) practices in the BNPL sector.

The BNPL Model: An In-Depth Look

The BNPL model involves three key players: the service providers, merchants, and end consumers. At the transaction point, the BNPL service provider instantly pays the purchase amount to the merchant. In return, a payment contract is established between the BNPL service provider and the consumer. This model offers consumers the convenience of paying in installments over a certain period, often at a low or zero interest rate. This has proved particularly appealing to younger generations and those without credit cards, creating a significant shift in consumer buying patterns.

Beyond providing a flexible payment solution, BNPL also opens up a new world of opportunities for merchants. It enables them to attract a wider range of customers, including those who may not have previously been able to afford certain products or services due to financial constraints. As a result, the BNPL model has been widely adopted by major e-commerce platforms, fintech companies, and even traditional banks.

The Rising Tide of BNPL Fraud

However, as the BNPL industry continues to grow, it has also seen a troubling increase in fraudulent activities. Given the rapid and seamless nature of BNPL transactions, providers can become easy targets for fraud. After only taking a few KYC details, BNPL providers immediately approve the purchased amount.

They therefore place themselves at risk if the buyer provides false information or decides not to pay the remaining amount. Unlike banks and credit card companies, many BNPL providers do not have standard credit check rules in place and instead rely on internally built algorithms to assess the financial competency of customers. This lack of standardized checks can leave providers vulnerable to fraud, creating a significant challenge for the industry.

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Preventing BNPL Fraud with Robust AML and KYC Checks

To combat this rising tide of fraud, BNPL providers must implement comprehensive AML and KYC procedures. This starts with verifying the identity of customers at the very beginning of transactions. It's crucial that every piece of customer information is accurate, and BNPL providers can enhance their security measures by integrating third-party verifications of customer identity at the time of sign-up.

Fraudsters have become increasingly sophisticated in their methods, with synthetic identity theft, account takeovers, and biometrics hacking becoming prevalent in the BNPL sector. To counteract these threats, providers need to employ robust identity verification techniques. This might involve using biometric verification in combination with liveness detection for high-risk users. Additionally, providers can improve their risk assessment processes by leveraging additional information about the customer's IP address, email address, phone number, or device.

AML Best Practices for BNPL Companies

To bolster their security and protect against fraud, BNPL companies can adopt several key AML strategies:

  • Digital Onboarding: This involves verifying the KYC details submitted and any government-authorized ID cards. By ensuring the accuracy of customer information and combining this process with third-party verifications of customer identity, BNPL providers can prevent fraudulentactivities at the onset of transactions.
  • Risk Assessment: BNPL providers can improve their risk assessment procedures by using additional customer information. This could include the customer's IP address, email address, phone number, or device. Additionally, examining the customer's past payment behaviors can also provide valuable insights and help identify potential 'never pay' fraud incidents or repeated chargebacks.
  • Robust Identity Verification: A strong identity verification process is essential in mitigating fraud. This can be done by utilizing a unified identity verification technique, which ensures the authentication of buyers. In cases where high-risk users are identified, biometric verification combined with liveness detection should be implemented.
  • Continuous Monitoring: As the risk of fraud is ongoing, BNPL companies should continuously monitor customer behavior and transactions. If any suspicious patterns are detected, they should be promptly investigated.


The BNPL model offers a unique blend of convenience and flexibility that is highly appealing to modern consumers. However, as the industry continues to grow, it also becomes a potential target for fraudsters.Therefore, the adoption of robust AML and KYC practices is vital for ensuring the security and long-term success of BNPL companies.

By effectively identifying and managing fraud risks, these companies can continue to provide their services safely and responsibly, fostering trust among their customers and stakeholders.

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