Outseer plans fraud detection apps for emerging payments, starting with BNPL – Digital Transactions
Given the resounding success of buy-now, pay-later loans, it’s no surprise that scammers have found a way into the game.
To help card issuers offering post-purchase BNPL installment payment options reduce the risk of fraud, Outseer, an authentication subsidiary of Bedford, Massachusetts-based data security service provider RSA, has unveiled Wednesday a fraud detection application. Typically, card issuers notify cardholders of BNPL-eligible transactions or flag them on their digital statement. Cardholders using a BNPL option through their card issuer generally pay a fixed monthly fee or a fixed interest rate.
BNPL lending is expected to reach $1.2 trillion in 2024, up from $500 billion in 2020, according to data and projections from Aite-Novarica Group, a Boston-based advisory firm.
The Outseer Buy Now, Pay Later Installments solution is built on the company’s 3D Secure platform and uses a combination of rules and policy-based technologies, as well as machine learning. The solution authenticates online a bearer opting for a BNPL loan with its issuer.
The solution is expected to help card issuers offering BNPL options, such as JP Morgan Chase and Citibank, combat the two most prevalent types of BNPL fraud: synthetic identity fraud and account takeover fraud.
Synthetic identity fraud occurs when a criminal uses personally identifiable information to fabricate an identity to deceive a merchant or financial institution. In 2020, Synthetic Identity Fraud Losses Reached $6 Billion, According to Auriemma Consulting Group
Account takeover fraud occurs when a fraudster gains access to a consumer’s account and changes personally identifiable information, then requests a new card or adds themselves as an authorized user of the account. In the latter case, he can also modify the password. Once in control of the account, the criminal can perform unauthorized transactions at will. Between the second quarter of 2020 and the second quarter of 2021, account takeover fraud increased more than eightfold, according to Sift, a provider of digital trust and security apps,
“Many consumers using BNPL tend to have thin credit histories, so synthetic identity fraud lends itself well to BNPL lending because with a thin credit history it is harder to detect a fraudulent transaction,” says Reed. Taussig, CEO of Outseer.
What makes synthetic identity fraud difficult to detect is that the fraudster has key information necessary for authentication, such as an address and social security number, but little or no history of credit that can also be used to authenticate the cardholder’s identity, says Taussig.
Outseer’s Buy Now, Pay Later Installments technology is the first in a planned series of customer authentication apps specifically designed for emerging payments, according to the company. Plans include developing an BNPL fraud detection solution for merchants who work with BNPL lending providers such as Klarna, Taussig adds.
“Fraudsters follow the money, so we are also seeing an increase in fraud attacks and losses in [the BNPL arena]says Julie Conroy, head of risk analysis consulting at Boston-based consulting firm Aite-Novarica Group, via email. “Fraudsters will probe the defenses of any player in this space, whether card issuers or fintechs like Klarna and Affirm, so it is essential for all companies making the decision in this space to have a robust control framework that allows them to detect fraud while not creating undue friction in the way of good customers.”