If you're in the B2B space, chances are you've come across the term BNPL (Buy Now, Pay Later). This payment option has been transforming eCommerce, offering businesses a flexible way to enhance cash flow while boosting sales. But as with any growing trend, it comes with its own set of challenges. Have you considered the risks of BNPL fraud, especially in high-value business transactions?
This guide will walk you through the key fraud risks in B2B BNPL transactions, while also equipping you with the best strategies to protect your business from financial threats. Ready to dive in? Let’s go.
Understanding B2B BNPL and its growing popularity
BNPL allows businesses to offer longer payment deadlines, providing buyers with flexibility while ensuring sellers get paid promptly. What sets them apart is that
1. In the case of BNPL, customers get to pay later, with no interest, usually financed by a BNPL provider.
2. In the case of trade credit, they get to pay later/in installments, with interest, usually financed by the seller.
Providers like PastPay have enabled businesses to unlock growth opportunities by offering instant approvals and seamless buyer experiences.
However, as businesses embrace BNPL, the complexities of fraud in high-volume transactions have also become more apparent. So, while it's tempting to adopt this trend, it’s crucial to understand the risks involved - and how to minimize them.
Types of fraud in B2B BNPL & how PastPay mitigates them
Here’s a breakdown of the common types of fraud in B2B BNPL and the measures PastPay uses to address each one:
Identity theft: a growing threat in B2B transactions
Fraudsters often use stolen business credentials to exploit BNPL systems, gaining unauthorized access to deferred payment options and placing orders without the legitimate business’s knowledge.
How PastPay mitigates this risk: PastPay implements robust KYB (Know Your Business) and KYC (Know Your Customer) protocols. To prevent identity theft, PastPay requires detailed documentation from businesses, such as company registration forms and official IDs. A final layer of protection involves photo verification to ensure the documents' authenticity, reducing the likelihood of identity fraud slipping through.
Phantom companies: fake businesses, real risks
Scammers create fake companies to exploit BNPL services, making large orders and vanishing once they’ve received goods, leaving sellers unpaid.
How PastPay prevents phantom companies: To tackle this, PastPay conducts detailed verification of all business documentation. We also implement a safeguard by holding payments until the buyer confirms the receipt of goods or services, ensuring that fraudsters can’t simply disappear with the merchandise.
Cybercriminals gain unauthorized access to a legitimate company’s account, making fraudulent purchases using the company’s credentials.
How PastPay tackles account takeover: PastPay's system features ongoing monitoring and real-time detection of unusual activities, such as sudden changes in account behavior. If anything suspicious is flagged, transactions are paused, and the company is notified immediately, preventing fraud from escalating.
Trade fraud: ensuring fair transactions
Fraudsters exploit the system by placing orders but refusing to pay, or claiming goods were never received, leaving sellers out of pocket.
How PastPay safeguards against trade fraud: To combat this, PastPay ensures that funds are only released to sellers after verifying that the buyer has received the goods or services. This added step provides a layer of assurance for sellers, keeping transactions transparent and fair.
Collusion: when fraud comes from within
Collusion occurs when multiple parties, often within a company, conspire to defraud the system. This can be harder to detect as it involves insider actions.
How PastPay thwarts collusion: PastPay implements automated cross-checks alongside its strict identity verification processes. These measures make it much more difficult for individuals to collaborate on fraudulent schemes, as any inconsistencies between identities or transaction details are flagged.
Credit misrepresentation: the risks of fake financials
Fraudsters sometimes submit false financial records to gain access to credit lines they aren’t qualified for, risking the financial health of BNPL providers and sellers.
How PastPay combats credit misrepresentation: PastPay goes beyond automated checks by conducting manual credit reviews. Applicants are required to submit financial documents like audited statements or bank records, ensuring that their claims are legitimate before credit is approved.
Synthetic identity fraud: fake people, real consequences
In synthetic identity fraud, criminals fabricate identities by combining real and fake information, posing as business owners to gain unauthorized credit.
How PastPay prevents synthetic identity fraud: PastPay's solution involves cross-verifying the identities of business owners, ensuring deliveries are only made to registered business addresses. This thorough verification process reduces the risk of fraudsters manipulating identities to access BNPL services.
Non-delivery fraud: safeguarding sellers
Some fraudsters place orders and claim they never received the goods, attempting to scam the system and leave the seller without payment.
How PastPay fights non-delivery fraud: To prevent this, PastPay only releases funds after confirming with the buyer that goods have been received. This not only ensures fair payment for sellers but also minimizes the risk of buyers claiming non-delivery fraudulently.
Burst-Out fraud: gradual trust, sudden betrayal
In this type of fraud, scammers build trust by placing smaller orders, only to make a large fraudulent transaction once trust has been established.
How PastPay prevents burst-out fraud: PastPay uses behavior pattern analysis, keeping an eye on customer transaction histories. Large orders are subjected to additional verification steps, such as verifying both the business and its owner, and deliveries are restricted to registered addresses only.
First-party fraud: a commitment to never pay
Some customers never intend to pay for the goods or services they purchase, committing what’s known as first-party fraud.
How PastPay handles first-party fraud: To mitigate this, PastPay utilizes credit bureaus, as well as machine learning (ML) and AI, to monitor customer behaviors in real-time. Suspicious patterns are flagged early on, reducing the likelihood of this type of fraud occurring undetected.
Best practices for fraud prevention in B2B BNPL
With the rise of B2B BNPL fraud, adopting a proactive approach is crucial. Below are some of the best fraud prevention strategies to safeguard your business:
Know Your Business (KYB) and Know Your Customer (KYC) One of the most effective ways to minimize fraud risks is through rigorous identity verification protocols. Implementing KYB and KYC practices ensures that every business and buyer is thoroughly vetted. This includes collecting official documentation, such as company registration forms and government-issued IDs.
AI-Powered monitoring and real-time data analysis Using AI and machine learning to monitor transactions in real-time is another powerful method. AI systems can identify suspicious activity, such as unexpected surges in orders, by comparing them to typical behavior patterns. Providers like PastPay have integrated real-time monitoring to detect anomalies early and prevent fraudulent transactions before they cause significant damage.
Multi-layered verification and ongoing risk assessment Fraud prevention requires constant vigilance. Employing multi-layered verification methods—such as two-factor authentication, encryption, and ongoing risk assessment—can provide an added layer of security. These methods, combined with comprehensive data aggregation, ensure that every transaction is scrutinized and secure from potential fraud risks.
Lastly, fraud in B2B BNPL is very complex, therefore it is an important aspect to discuss when a merchant selects a B2B BNPL provider and PastPay stands out in keeping fraud risk to the minimum, therefore it's a great choice to manage the entire process for merchants and implement it as a safe payment solution.
Criteria
In-house BNPL solution
Outsourced BNPL provider
Customization
Full control over customization to fit specific business needs and customer segments.
Limited customization, but tailored offerings may be available.
Data ownership
Retains complete control over customer data, providing valuable insights for marketing strategies.
Data handled by the provider, with possible shared insights.
Cost efficiency
Higher upfront costs but potential savings over time for larger businesses, avoiding third-party fees.
Reduces initial costs, with predictable ongoing fees.
Implementation time
Longer implementation time due to the need for internal development and setup.
Faster implementation, often operational within weeks.
Scalability
Requires significant reinvestment for scaling, including tech updates and resource expansion.
Easily scalable to handle high transaction volumes with minimal adjustment.
Complexity & resources
Demands high operational resources for risk management, fraud detection, and regulatory compliance.
Requires continuous investment in credit monitoring and compliance.
Advanced risk management, fraud prevention, and compliance handled by provider using AI and algorithms.
Initial investment
High investment required for tech infrastructure, hiring specialists, and software development.
Minimal initial investment; costs primarily in ongoing service fees.
Conclusion
BNPL in the B2B space offers significant advantages, but it also introduces new avenues for fraud. By understanding the various types of fraud and employing robust prevention strategies—such as KYB, KYC, real-time monitoring, and multi-layered verification—you can protect your business from financial risks and ensure secure transactions.PastPay and similar platforms provide the tools and expertise to help businesses navigate these challenges, so you can focus on growth while keeping fraud at bay.
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