October is a great time to be in India because it is the start of the festive season.
Indian consumers have expressed a strong desire to buy more discretionary products during the festive season while coming out of the pandemic, according to Deloitte’s Global State of Consumer Tracker.
‘Buy Now, Pay Later’ (BNPL), Digital credit line and e-wallet offerings appear to be the rage this festive season, with several e-commerce sites, banks, and merchants offering such deals. Even without a credit history, a substantial number of borrowers can now take advantage of BNPL’s short-term credit. Many of us have had to tighten our wallets as a result of the Covid-19 outbreak and weak global economic scenario making BNPL programs even more appealing.
One may wonder what was the need for a fresh line of credit when legacy banks were already supplying EMIs. To drive success, e-commerce and other shopping websites are increasingly conscious that they must target the digitally native audience. This group includes Millennials and Genzers, who have great purchasing power and intent in India.
According to JuicyScore's experience, along with growing e-commerce activity, the need for credit funds grows during this season by at least 2.5-3 times.
Manish Thakwani, Head of business development of JuicyScore in India, a company that develops anti-fraud and risk management solutions, will share a useful to-do list with all the online businesses eager to protect themselves from festive season fraud.
The main risk that the owners of fintech companies usually face during this period is a sharp increase of fraudulent applications in the application flow. How exactly does this happen? The fraudster repeatedly submits applications for a loan to different financial institutions, changing some pieces of the data from an application to application in order to “slip” through the lender’s decision-making systems.
According to the report “FIGHTING ONLINE PAYMENT FRAUD IN 2022” by Juniper Research, the potential of fraud with BNPL is a major risk going forward.
The most difficult case in terms of consequences for online business is when a fraudster uses compromised data obtained illegally, also known as identity theft. This is the most common type of fraud in India. Such issued loans/credit lines become really unpleasant surprises for both – the owner of stolen credentials and the credit institution. Such a loan subsequently turns into a financial loss and damages the company’s reputation.
Dealing with the “fly in the ointment” is most often quite easy:
- Apply a more conservative approach: one of the most frequently used methods is to temporarily tighten the company’s risk policy in the context of the approval of applications. Evaluation of new loan applications in a more conservative manner and rigorous selection will help protect businesses from potential financial losses.
- Pay great attention to the applications with high-risk markers – attempts of device or internet connection manipulation as well as the user’s shady behavior. This will help to reduce the share of borrowers who try to apply for a large number of loans and credits often manipulating application data at the same time (for example, using data of relatives, the so-called family fraud).
- Approach the valuation of frequency characteristics in a more conservative way. But of course, in this case, the company runs the risk of losing profit. This problem may be solved by a more precise adjustment of the financial product for the end user. Having developed special offers, taking into account the needs of customers, the company can mitigate the situation.
We know that seasonal attacks bring a lot of trouble due to the growing percentage of “black sheep”. It’s been several years since we register an increase in the number of fraudulent applications at the beginning of October in India. Indeed, according to our data, normally each 10th application would be fraudulent. During a festive season rush, these figures can be up 10 times higher. However, following our to-do list will help you to reduce risk rather than deal with its consequences and keep your business operations safe.
BNPL fraud may be reduced by being proactive with your fraud systems, layering your defenses with the most appropriate solutions, and maintaining regular communication with your consumers.