The buy now, pay later (BNPL) market appeals to consumers since it provides them with various payment choices. In addition, BNPL is popular among merchants since it allows them to improve basket values by offering more expensive or high-end items to more customers who are ready to pay over time. However, companies using BNPL platforms should take advantage of AML transaction monitoring. Thus, BNPL AML compliance can be achieved.
What is BNPL?
BNPL is a short-term payment option merchants offer to customers making large purchases. Customers pay in multiple installments for their products. Customers can choose BNPL as a payment option during in-store or online checkout and will be subjected to a quick approval procedure after a minimal credit check. Payment arrangements are usually for a few weeks or months. The plans are frequently interest-free. Since BNPL is a type of lending, missed or late payments may result in late fees. They can also harm a customer's credit score.
The BNPL approach is comparable to several businesses' layaway plans. In a layaway arrangement, however, retailers keep acquired items until the buyer pays in full. Customers using the BNPL model get their items immediately and pay down their balance over time.
BNPL Platforms Marketshare
According to a study, the worldwide BNPL market will reach a transaction volume of $680 billion by 2025. According to the same survey, Americans are more inclined to utilize BNPL platforms to avoid using their credit cards or purchases. Furthermore, BNPL payments in the United States are expected to surpass $82 billion by the end of this year.
According to research from the UK, BNPL is now utilized by 25% of eCommerce customers and is available from 20,000 retailers. Recent transactions totaled £6.4 billion, accounting for 5% of the eCommerce market. According to UK statistics, Financial Conduct Authority, BNPL is also popular among younger age groups, with 25% of platform users between the ages of 18 and 25 and 50% between the ages of 25 and 36. Female clients, who account for 70% of all users, are huge fans of the sites. Fashion and footwear account for almost 90% of all purchases.
Given the present magnitude of the BNPL industry, it's critical to comprehend how platforms are prone to fraud and fight to protect them.
BNPL fraud has two significant consequences for merchants that work with BNLP suppliers.
- The merchant's reputation: If a merchant's BNPL service cheats on a consumer, the customer is unlikely to do business with that merchant again. Furthermore, the scammed client will likely share their story with friends, family, and social media followers. This scenario raises severe concerns about merchants' ability to secure their customers' personal information and data.
- Consequences in terms of money: While most businesses will not be responsible for chargebacks for fraudulent transactions, they will need to work with their BNPL provider to resolve the issue. Many BNPL providers include security breach provisions in their merchant agreements. As a result, businesses may be responsible for the cost of the fraudulent transaction.
Tips for Securing BNPL Platforms
There are various methods that both BNPL platforms and merchants may take to keep their transactions safe as BNPL platforms continue to evolve. In the case of applying these methods, BNPL AML compliance is achieved.
Sanction Risks for BNPL Companies
For BNPL AML compliance, companies can take some measures. According to Financial Action Task Force (FATF) recommendations, banks and financial institutions should use a risk-based approach to anti-money laundering compliance, according to FATF recommendations. A risk-based strategy demands companies to analyze their customers during onboarding and throughout the business relationship and then execute a compliance response proportional to the risk they pose. Customers with higher risk should be subjected to more stringent BNPL AML compliance requirements, while those with lesser risk should be subjected to less strict restrictions.
Clients in high-risk nations or customers with naming ambiguities such as nicknames or uncommon spelling standards may pose a risk to BNPL enterprises regarding sanctions compliance. Data availability should also be considered a risk factor. Consumers with poor identifying information or who are challenging to locate due to inadequate data should be classified as high risk.
With these considerations in mind, businesses should actively monitor the transactions of high-risk consumers to ensure they are not conducting business with sanctioned parties.
Name matching is also essential for BNPL AML compliance. The onboarding process is critical in a competitive market environment. BNPL companies must be able to swiftly match the names of new customers to the applicable sanctions lists or risk producing awful user experiences and losing those consumers to rivals. A less thorough name-matching method, on the other hand, may result in blindspots, with businesses missing potential matches and risking criminal culpability.
Given the compliance risk, BNPL businesses should create a search algorithm that swiftly and efficiently matches client names to appropriate sanctions lists. In addition, the algorithm should be able to account for regional naming traditions, non-Latinate spellings, nicknames, and aliases, as well as the unique penalty problems listed above.
Customer Due Diligence (CDD)
To generate accurate risk profiles, BNPL firms must establish and verify their clients' identities using appropriate due diligence techniques. Customer due diligence (CDD) is a step in the onboarding process that requires businesses to gather identifying information such as names, addresses, and dates of birth. Following a risk-based approach, BNPL businesses should apply higher-risk consumers to other due diligence processes, requiring a more extensive selection of identifying information after undertaking risk assessments.
Because many BNPL enterprises provide digital services, they must account for their online consumers' anonymity. Therefore, it implies that BNPL businesses should demand digital identity from their consumers. Also, it might entail getting electronic copies of official papers like passports or driver's licenses or using biometric verification techniques like face, voice, and fingerprint scans.
Monitoring for BNPL Companies
The BNPL environment continuously evolves, with various financial regulators introducing or considering new laws. With this in mind, BNPL enterprises should strive to be proactive in their approach to compliance concerns and should endeavor to monitor their clients and transactions continuously.
Firms can use ongoing AML monitoring to ensure that they are alerted to changes in their risk exposure as soon as feasible. It is how it is possible to ensure BNPL AML compliance. Numerous factors, such as sanctions designations, changes in PEP status, and involvement in negative media stories, might influence customer risk profiles.
BNPL businesses should know how existing AML/CFT requirements influence their compliance duties, regardless of new legislation.
The Anti-Money Laundering Act 2020 (AMLA) is the most recent piece of AML law. AMLA was enacted to bolster the United States anti-money laundering and counter-terrorist financing infrastructure. It incorporates provisions that reflect the threats of today's fintech ecosystem and developing criminal tactics. From this perspective, AMLA is essential for BNPL AML compliance.