As BNPL usage increases, so does risk of fraud, study claims

Fraud risk is on the rise amid an increase in the use of buy now, pay later (BNPL) services, according to new research from fraud prevention company Callsign.

The study found that nearly half (48%) of American adults take advantage of BNPL services, which allow consumers to divide their purchases into smaller, interest-free payments. Some well-known BNPL providers include Afterpay, Affirm, Sezzle and Klarna. Callsign's study also said that 54% of those users have more than one BNPL account, and 23% have at least two.

Credit reporting agency TransUnion recently announced that up to 100 million adults have used a BNPL service in the past year. It became the second credit bureau — following Equifax — to include BNPL information during the process of calculating one's credit score.

However, many users are falling victim to fraud. According to Callsign's study, 14% said they've experienced fraud themselves, and another 6% said they're unsure if they have.

"The most common way users have fallen victim to fraud is through a fake BNPL account being set up using their credentials, with 26% reporting this," the study stated.

Read on to learn about how BNPL users are experiencing fraud, as well as alternatives to those services like a personal loan. With Credible, for instance, you can compare personal loan rates from multiple lenders without affecting your credit score.

In what ways are BNPL users experiencing fraud?

Consumers may fall victim to fraud, according to Callsign's research, by not changing the passwords on their BNPL accounts. Close to half (45%) of consumers said that they use the same email-password combination for multiple BNPL accounts.

Another 22% said that they signed up for a fake BNPL account, resulting in fraud, and 20% said that their BNPL account was hacked. Callsign's research also noted that more than half (60%) of people said they'd have more trust in utilizing a BNPL account if it came from their bank, rather than a different provider.

"Over half (55%) of the general population believe that BNPL providers should be most responsible for protecting their customers against from fraud, closely followed by the retailer connected to them (50%)," the study said.

But among those users who have experienced fraud, about 43% said they should have been responsible for their own information. If you are wary of using BNPL services, consider taking out a personal loan instead, which can be a useful alternative if you need cash for large purchases. Visit Credible to compare multiple lenders at once and find the one with the best interest rate for you.

How to choose the best borrowing option for you

Those who have experienced BNPL fraud face increased anxiety about shopping online, the survey showed. In fact, 23% of those who experienced fraud no longer use any BNPL services and 18% no longer use the retail website from which they purchased the goods. But there are loan alternatives that may be a better fit for some consumers:

Credit cards

For consumers in need of a revolving line of credit, a credit card may be a better alternative to BNPL for their purchases. Many credit cards offer cash back or other incentives for using them, like paying zero interest for a period of time. However, a downside to credit cards is that they typically have high interest rates could build up if borrowers aren't able to pay down their balance each month. 

You can explore the credit card options available to you by visiting Credible, where you can compare cards in minutes and choose the one that best fits your needs.

Personal loans

Personal loans allow consumers access to credit at a lower interest rate than most credit cards, and they can be paid back in smaller monthly payments. The personal loan industry is also more regulated, meaning lenders will take more steps to ensure consumers can afford the loans they're taking out.

One downside to personal loans, though, is that they're not revolving lines of credit and can be more beneficial when paying down high-interest debt or large purchases, rather than everyday purchases.

If you want to see your personal loan options, contact Credible to speak to a personal loan expert and get all of your questions answered.

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