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Experian, TransUnion bringing buy now/pay later loans into credit reports | PaymentsSource

Experian, TransUnion bringing buy now/pay later loans into credit reports | PaymentsSource
Written by Publishing Team

Lending Now/Pay Later has raised concerns about rising consumer credit risk, and part of the problem is the lack of data available to other lenders.

Starting in the next few weeks, Equifax will add a business industry token to BNPL to categorize data such as payment history, a move that will make BNPL loans visible on credit reports. Equifax says this will give customers and registry partners the ability to decide how to include BNPL payments in their decision-making about new financial services. Meanwhile, TransUnion is working on its own BNPL credit reporting service.

“There is a huge opportunity to better understand what is going on in this market,” said Mark Lauber, chief product officer of Equifax US Information Solutions in Atlanta. “Everyone is responsible for responsible lending…to make loans that can be repaid. These credit reports will help with that.”

The office moves come as BNPL lending continues to expand, with traditional financial services companies, the e-commerce industry, fintech professionals like Affirm and Klarna, and payment tech companies like Square and PayPal, all of whom are targeting the market. The rapid growth has led to concerns from regulators that consumers are accumulating debt. Adding BNPL’s loan performance to a consumer’s broader credit report could help allay concerns for both lenders and regulators, according to Brian Riley, director of credit advisory service for Mercator Consulting Group in Tampa.

“Traditional lenders will be able to measure usage and identify lending opportunities,” Riley said. “Regulators interested in understanding lending quality will not have to look beyond anonymous desk data.” Traders will benefit from the popularization of BNPL lending. “

BNPL loans, also called installment loans, are offered online or at a physical point of sale as a “Pay in Four” option for a single purchase. Some banks also offer the option of paying for individual credit card purchases in installments after the fact, although most providers offer BNPL loans separate from any specific card account.

Equifax’s internal research, conducted with FICO, found that timely payments for BNPL lending can boost credit scores. Consumers who paid their BNPL installments on time had an average FICO score increase of 13 points, according to an Equifax study. The study also showed that consumers with a thin credit profile (two or fewer trendlines) or a small (less than 24 months old) credit profile had an average FICO score of 21 by adding on-time BNPL payments. Equifax did not answer questions about how missed BNPL payments specifically alter FICO’s results, although it said there was a negative impact.

Studies from various sources such as Australian government And motley ful It found that consumers often used BNPL to purchase things they could not afford, or to avoid adding to an already high level of credit card debt. In the United States, 41% of consumers used BNPL loans between September 2020 and September 2021, according to research by Piplsay in Clifton, New Jersey, which surveyed 31,000 consumers in late September. Among those consumers, 26% reported losing at least one BNPL payment during that time, Pipslay reports.

Additionally, 39% reported using BNPL because they did not want to make the full payment for the product (generally $500 or less) at once, 37% said the product was over their budget, and 24% said they didn’t have enough money to do so . to push. Piplsay also found that 34% of consumers have used a BNPL once or twice in the past year, 26% three or four times, 21% five to seven times, and 19% more than seven times.

“People are using BNPL to buy things they can’t afford rather than the luxury of paying for it later,” said Ted Pulcifer, executive vice president at Schlesinger Group, a market research firm based in New Jersey, Ted Pulcifer. “The data shows that there is an awareness of the risks that need to occur.”

organizers In the UK, Sweden (home of Klarna) and California have examined BNPL lending over the past year. Concerns about credit risk led Consumer Financial Protection Bureau In December, BNPL’s lenders including Affirm, Afterpay, Klarna, PayPal and Zip were ordered to provide information to help the CFPB measure the impact of point-of-sale credit on consumers.

Data from credit reports can provide regulators with a clear view of the impact of BNPL on consumers, according to Riley, who added that it can also help consumers who successfully pay off their BNPL loans build their own credit profiles for much larger purchases.

“Credit reporting on BNPBL loans is an important aspect of product maturity,” Riley said. “Although these financial products are relatively low-cost, they provide insight into how the borrower will repay. For many people who have thin or invisible credit profiles, BNPL can offer a way to help them generalize credit.”

Experian has not provided a comment for this story. Experian site He says BNPL payments can affect a consumer’s credit score, and Confirms Provides some BNPL loan data to Experian.

In an email, TransUnion spokeswoman Liz Bagel said: “BNPL and POS premiums are net new types of credit obligations that the current credit ecosystem in the United States is not ready to support.”

Bagel added that it’s important that TransUnion reports reflect total consumer indebtedness, “and we’re on track to offer an in-market solution that will make this data available without having an undue impact on existing enrollment models.”

TransUnion has also partnered with BNPL lender Sezzle to allow consumers to build credit using their payment history with Sezzle.

“By turning BNPL into a credit building tool, BNPL providers benefit by improving their value proposition to their users, Equifax expands its utility as an office and at the same time banks benefit by gaining more knowledge and increasing the size of the target base of creditworthy borrowers,” said Rick. Oglesby, president of the A-Z Payments Group in Phoenix.

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