How Can the First Payment Default Help BNPL Program?

Category: Academics

Everybody is familiar with the buy now, pay later (BNPL) program through which you can buy expensive products such as designer pieces without paying all the amount at once. Such a program is beneficial, especially when the discount season is approaching. The only problem is that there are also risky situations, such as those when people fail to pay for their obligations. The best solution in such a situation is first payment default, which many use as a measure of credit risk because it shows that the borrower is not in the capacity to pay for what he ordered.

Returning to BNPL, you must know that this is incredibly popular these days, making it a target for scammers. Why not buy what you want at this particular moment if you have the option to pay for it later? You can even split the purchase cost into three installments. You pay the first amount when you purchase the products and the remaining amount, which you can do in 2 separate payments. You can automatically schedule them at a distance of 30 days, one from the other, for example. But, as the BNPL program's number of clients grows, so do the associated financial risks.

The First Payment Default Is a Warning Sign

Many borrowers can have payment problems, but not all try to cheat the lender. There can be so many factors that can make someone unable to pay for his debts, such as financial distress or lack of income. The problem is not that the client misses one payment; the problem is when he starts to miss the second, the third, which shows that you have to deal with a risky situation. That is why a crucial aspect to grasp is the timeline of the first payment default.

What Are the Risks When BNPL Fraud Happens?

Fraud is equal to financial losses when clients do not pay their loans. The economic impact is enormous in these cases. Also, it must be mentioned that the costs of investigating fraud are high. You need to monitor and rectify potentially harmful activities, which costs a lot, especially if you do not have proper personnel to handle this issue. There can also be the case for penalties if excessive chargebacks are made. All these fraud issues will affect liquidity, leading to processing fees and penalties.

If fraud is an issue in your company, people will hear about it sooner or later, and your client's number will decrease as expected. In such cases, your brand reputation can be damaged because clients will think that your company will not be able to comply with standards, and this way, you will lose many profitable customers. On the other hand, there can be fines and financial losses because fraud can affect an operation. The reputational damage is so massive that many companies never return from it.

Examples of BNPL Fraud to Avoid

In many situations, it helps to know what you are dealing with and how you can avoid those particular issues. It is essential to understand how fraud works, what you can do if it happens in the case of BNPLs, and how first payment default can help you identify potentially risky situations. You must understand that scammers do not stick to a single fraud method. They often come up with new ways to scam companies, making it harder and harder to identify what you are against.

Identity theft is one of the most common frauds you can meet. Scammers steal people's identities or create fake ones to open BNPL accounts. Such financial losses can be huge because there are only a few situations when money is paid back. On the other hand, there are cases when clients dispute charges due to financial strain, which will drive chargebacks. In this case, when clients do not pay for their orders, both cases mean lost revenue. Many situations can occur, and as many try to find a solution, even using first payment default, fraudsters always find new ways to cheat.

There are also many situations when clients see from their accounts that they made different purchases they had no idea about. That fraud can ruin any brand's reputation, and it will be hard to regain it. Another type of fraud can happen when someone tries to extend a credit limit with no intention of giving the money back. Such situations are few and most likely rare to occur because there are prevention solutions that will combat them, as there are measures that will help signal any possible financial loss.

How Can You Protect BNPL Programs?

As pay-later programs continue to exist, solutions will always be needed to avoid them. There are different steps you can take against fraud. There are strategies to keep scammers away effectively. You can implement various fraud detection systems that combine transaction monitoring with behavior analytics for fraud detection. You can opt for multi-factor authentication to better your account security. That is a good choice when you need to make high-risk payments. Use first payment default as a prevention tool to encourage better customer management.

By any means, you must increase awareness about BNPL services, including security practices and payment obligations. It may seem not very easy, but it is. Find the proper tools and adopt the best strategies to detect or prevent fraud. Banks and BNPL providers need to protect their customers because by ensuring flexible payment options, they gain clients, and by implementing fraud prevention strategies, they can protect their revenue and increase customer satisfaction. In the long term, that means loyal clients, which can bring many more others.

Consider the first payment default to detect anomalies that will help prevent fraud in the long run. Once the first payment does not occur, there is a sign that something is not ok. That is an essential issue of credit risk management, and it needs a lot of attention and proper strategies to avoid potential losses. Wherever you opt for a BNPL or want to help others know the fraud risks, remember that prevention in many situations enables you to avoid bad situations.