Kevin Gosschalk (founder and CEO, American fraud prevention startup Arkose Labs) said criminals target BNPL platform because they are more vulnerable than large banks and credit cards companies.

He told CNBC that Fintechs can be very profitable because they are often fast-growing and early-stage businesses. They are more secure than big banks, which have had to be around for long periods of time on security. This makes them an attractive target.

Klarna refuted claims that its fraud checks and controls were more lax than that of banks, while Afterpay said it has “extensive back-end fraud processes” in place to verify new users.

Gosschalk claimed that fraudsters are making use of such services in the U.S. to take advantage of supply shortfalls. To make a profit, he gave an example of a criminal buying PlayStation 5 consoles from BNPL.

Because BNPL services let users spread their purchases across four equal installments, fraudsters are able to pay just 25% base value — about $125 for a PS5 — and avoid paying back the rest, Arkose Labs’ CEO said.

Alerts about fraud in BNPL are especially timely given that Black Friday marks the start of critical holiday shopping season.

Gottchalk stated that fraud will be hidden because security guards at these events are always less strict because it won’t impact on sales.

BNPL’s revenue is largely generated by merchants. Klarna or Afterpay may charge merchants small fees for transactions made through their platforms.

Merchants often find that their sales volume increases as a result of this selling point. Concerns have been raised that BNPL plans encourage consumers to spend beyond their means.

Gottchalk stated that retailers are often happy to take some fraud in return for doing business.

Alex Marsh, Klarna UK’s chief executive, stated that Klarna conducts both internal and external checks with “advanced, extensive controls.”

Marsh stated that these comments, which are based upon observations made by other BNPL companies, do not reflect Klarna’s business and fraud prevention capabilities. Marsh stated that our fraud rates are less than credit card fraud, and we use far better technology for checkout and products to prevent fraud than banks and credit card issuers.

“We work closer with merchants than the average bank or credit card issuer which means we get a richer level of product data to put in place stronger and more dynamic  protections than outdated payment methods such as credit cards.”

Afterpay claimed that managing fraud is a top priority for them and that less than 1% were due to fraud in its last financial year.

Rich Bayer from the United Kingdom, Afterpay’s country manager, said that Clearpay’s risk management system was based upon market-leading machine learning algorithms and is constantly being adjusted to combat any possible threats.

“Our global risk team is very close to any potential attack or loss abnormality and reacts fast to keep both our customers and merchants safe at all times.”