Promoting Positive Outcomes for BNPL Consumers: Insights Shared at Fintech Nexus 2022

2021 WAS A BREAKOUT YEAR for Buy Now, Pay Later (BNPL) in the U.S., with total retail purchases using BNPL products more than quadrupling from the prior year. The continued popularity of the pay-in-four loans has inevitably surfaced questions around consumer impact. FinTechs, traditional lenders, credit bureaus, and other stakeholders are considering how to support convenient access to credit while promoting positive consumer outcomes, and Equifax is leading the conversation. 

Each year, Fintech Nexus USA gathers some of the industry’s biggest names to explore some of the complexities found in our rapidly changing world. At this year’s event, Equifax U.S. Information Solutions (USIS) Chief Product Officer, Mark Luber, joined Fintech Nexus Chief Product Officer, Todd Anderson, to help answer some of those important questions around BNPL – from conclusions about BNPL consumer demographics to consumer credit score impacts and
more.     

 

What do we know about BNPL consumers, credit impact and the products’ growing popularity?  

As Luber shared with the Fintech Nexus audience, the number of BNPL users in the U.S. has more than tripled every year since 2018, exceeding 50 million by the end of 2021, according to multiple reports. He pointed out that consumers appreciate (and much of the popularity can be attributed to) the easy access, simple payment terms and affordable credit opportunities that BNPL products provide. 

An Equifax study into the typical BNPL consumer revealed two primary applicant profiles: (1) those new to credit – with one in five BNPL applicants having no credit file history – and (2) heavy users of credit overall. Notably, compared to the general credit population, BNPL applicants skew younger and have lower income, less wealth and lower credit scores. 

Even so, an Equifax study on anonymized consumer data from a BNPL provider reporting tradelines as revolving lines of credit indicated that consumers who pay on time and in full are likely to see a positive score impact, and those who don’t may see a negative score impact. In fact, Equifax found that the majority of consumers experience a positive impact on FICO® Score when paid-on-time BNPL trades are incorporated into their credit file. 

 

What is being done to protect consumers and lenders? 

“Because BNPL trades generally have not been reported to the credit bureaus, it can create a blind spot that raises concern for consumer loan underwriters,” said Luber. “In addition, consumers who pay their bills on time should get credit for it, and Buy Now Pay Later is another way to demonstrate that responsible payment behavior.” 

In February, Equifax introduced a new business industry code, allowing BNPL providers to report BNPL payment information into credit reports. By approaching BNPL reporting in this way, Equifax is helping open up access to mainstream financial opportunities for more consumers, while at the same time offering a more complete picture of financial obligations for lenders. 

With the understanding that current scoring models and customers will need more time to adjust as the BNPL market matures, Equifax will be implementing functionality that allows lenders and other customers to choose whether to receive BNPL installment tradelines as part of the credit file. In addition, Equifax is suppressing BNPL installment tradelines from current versions of generally available attributes and scores, such as FICO scores and VantageScore. This functionality does not change the Equifax approach. 

“It’s important to understand that the objective of BNPL reporting solutions is to equip lenders with information to help expand access to credit, while adding the transparency needed for responsible lending decisions that promote positive consumer outcomes,” said Luber.  

 

What’s next for BNPL? 

“As they strive to provide the best overall customer experience, traditional financial institutions are looking at offering smaller loans and creating BNPL or similar short-term installment programs, while BNPL providers are looking into offering longer-term loans. Over the next couple of years, Luber expects BNPL services to differentiate by expanding merchants and services, improve profitability by addressing default and fraud risks, and develop to build consumer loyalty. 

In a commitment to transparency in communicating its BNPL reporting approach, Equifax is continuing to research the impact of BNPL payment information on credit reports and provide the most up-to-date information available. There are several resources available related to the topic on the Equifax Newsroom site here.