Buying Into the Concept of ‘Buy Now, Pay Later’

December 16, 2021

BNPL PRODUCTS, also known as point-of-sale financing, are a growing way for consumers, particularly those aiming to avoid using traditional forms of credit or paying interest fees, to access convenient, alternative financing options for online or in-store purchases. They typically involve short-term, interest-free installment payments offered at checkout. 

More than 45 million people in the U.S. are expected to use BNPL services in 2021, according to Insider Intelligence. And as this financing trend grows, Equifax has created the industry’s
first policy for acceptance of BNPL tradelines in consumer credit files via Consumer Data Industry Association (CDIA) Metro 2® guidelines. An Equifax study of anonymized consumer data from a BNPL provider shows that individuals who pay their BNPL loans on time could potentially increase their FICO® Score一helping consumers to both build and rebuild credit.

An industry first

“Equifax will be the first credit reporting agency to formalize a standard process for reporting BNPL tradelines for inclusion on traditional consumer credit reports,” said Mark Luber, chief product officer for U.S. Information Solutions (USIS) at Equifax. “We are committed to helping people live their financial best, and recognize the role that BNPL services can play in helping people build stronger financial profiles.”

Beginning in the first quarter of 2022, Equifax will implement a new “business industry code” for BNPL. This is a standard identifier used to classify the industry in which each Equifax customer functions. The new industry code will classify BNPL tradelines and give Equifax customers and scoring partners the ability to view and decide how to incorporate the information into their decisioning to potentially open up new mainstream financial services opportunities to more consumers.

Powerful source of data

“Most BNPL providers either bypass the credit check completely, or do a soft pull on credit files, which can be attractive to consumers,” said Luber. “We are encouraging BNPL providers to report into Equifax as a powerful source of data. Those who use BNPL services that report can demonstrate reliable behavior and boost their credit profile.” 

Equifax research shows that the inclusion of on-time payments of BNPL loans in credit reporting may increase credit scores. Equifax conducted a study of anonymized consumer BNPL data, where the BNPL tradelines had the following features:

  • Reported as revolving line of credit accounts

  • Had on average five-and a-half months of repayment history reported

  • Had an average utilization of 17.9% (including consumers who paid off their BNPL tradeline)

The Equifax study also shows the potential for consumers who pay their BNPL loans on-time to improve their FICO® Score, specifically:

  • The majority of consumers in the study were helped by having an on-time BNPL tradeline in their credit file, with an average FICO® Score increase of 13 points

  • BNPL can be a powerful way for new-to-credit consumers to build their credit profiles

  • The study showed that individuals with either a “thin” credit file consisting of two or less tradelines or a “young” credit file一where all credit history is no more than 24 months old一saw an average FICO® Score increase of 21 points with the addition of on-time BNPL tradelines to their credit file

  • BNPL can also help consumers rebuild their credit. Consumers who had significantly late payments reported on their traditional credit file experienced an average FICO® Score increase of 13 points with the addition of on-time BNPL tradelines to their credit file

Enabling access to credit

Buy now, pay later platforms continue to grow in popularity internationally. An Equifax report showed that a record 28% of the UK adult population (53.6 million) made at least one BNPL repayment in October, up from 23% in December last year. Fintechs collect fees from merchants, who enjoy the benefits of higher traffic to their sites, decreasing the cart abandonment rate and translates into a higher average order value. 

“This BNPL trend is only going to grow as online shopping experiences get more innovative,” said Luber. “Equifax sees tremendous value in enhancing access to credit, and incorporating this data into traditional credit reports to help consumers qualify for more mainstream financial services products with more favorable terms, such as mortgages and auto loans.”

Equifax has led the exploration of new data to open access to credit and financial inclusion for decades. This announcement follows the company’s launch of the first and only Spanish translated credit report available online and by mail. In addition, the recent acquisition of Teletrack, as well as Equifax innovations in alternative and new data, are designed to positively promote access to mainstream financial service and help bring more people into the credit economy.