TransUnion maximizes financial inclusion opportunities for nearly 100 million consumers using BNPL loans

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As many as 100 million U.S. adults have used BNPL (Buy Now Pay Later) loans at least once in the past 12 months, but financial institutions currently don’t have access to the insights gained as consumers initiate and repay these new debt obligations, it said a new report. Now, TransUnion says it is rolling out a suite of solutions to “help people using BNPL loans get credit for their payments today and build credit for the long term.”

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According to TransUnion, the inclusion of point-of-sale loans, which include BNPL loans, in a consumer credit file will likely benefit the demographics most in need of new tools to build and improve their credit ratings.

Liz Pagel, senior vice president and consumer lending business leader at TransUnion, told GOBankingRates that point-of-sale loans include flexible, installment-like loans that allow buyers to make payments over time.

“Point-of-sale loans are transactional, like a credit card swipe, but they’re underwritten as a single unsecured installment loan,” Pagel said. “BNPL loans are a type of point-of-sale loan, although traditionally they are used for smaller purchases and are repaid in shorter periods of time.”

These point-of-sale loans — which give borrowers the ability to get an unsecured personal loan instantly upon checkout — are likely to change the way people pay for large items, according to a report by TransUnion.

TransUnion said the youngest generations — Gen Z and younger millennials — will benefit, as people using this credit product tend to be younger. One in three applicants for point-of-sale financing (33%) is between the ages of 18 and 30, compared to 17% of the total credit-active population. And according to the TransUnion report, 43% of point-of-sale applicants fall into the subprime credit risk category, compared to 13% overall.

“While Gen Z and younger Millennials use BNPL loans at a higher percentage than the general population, TransUnion’s suite of solutions benefits all borrowers as our approach helps lenders ensure lending activity is captured in a way that benefits consumers and consumers maximizing the lending ecosystem.” Pagel said.

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TransUnion expressed that adding point-of-sale loans to the consumer credit file is likely to benefit the demographics most in need of new tools to build and improve their credit ratings. “The inclusion of point-of-sale loans, including BNPL, in credit reports and other risk management tools can help tens of millions of BNPL users access more credit opportunities and potentially obtain better credit terms from lenders,” Pagel said.

In return, she explained that this will help promote opportunities for financial inclusion.

“When BNPL borrowers make on-time payments, this positive payment history is available for lenders to use in their lending decisions. This can open up opportunities for those consumers to secure other loans at better interest rates,” she said.

When asked why they are calling this a “unique new BNPL solution,” Pagel explained that TransUnion has “taken a measured approach to our suite of solutions that will benefit consumers and lenders in both the short and long term.”

“A consumer with normal shopping habits could produce several [BNPL] loans per year, which most existing lending models see as risky behavior.”

Pagel added that it could unduly impact the credit scores of millions of consumers, making ratings less meaningful.

“The goal is to have a single standard for lenders to report data and accelerate adoption by lenders and scoring providers going forward,” she said. “The information is tagged and filtered into a new partitioned portion of TransUnion’s main credit file. Longer term, TransUnion plans to include point-of-sale data in the core credit file, where it can maximize the number of credit decisions it impacts.”

BNPL plans can be easier to obtain than credit cards, which is appealing to those with lower credit scores or those who are new to credit scores and may not have any credit scores at all, as GOBankingRates previously reported. However, to be clear, BNPL is a loan. “Yes, it’s a short-term loan and it’s interest-free if you follow all the rules, but if you default on a payment, the consequences are expensive and potentially credit-damaging,” Shannon Vissers, retail analyst at Merchant Maverick, told GOBankingRates in Oct. 2021

The practice was also put to the test. In December, the Consumer Financial Protection Bureau (CFPB) issued a series of orders to five companies, Affirm, Afterpay, Klarna, PayPal and Zip, offering “buy now, pay later” credits.

The CFPB said at the time it was concerned about debt accumulation, regulatory arbitrage and data collection in a consumer credit market already changing rapidly due to technological advances.

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“Buy now, pay later is the new version of the old layaway plan but with modern, faster twists where the consumer gets the product immediately but also gets the debt immediately,” CFPB Director Rohit Chopra said in a statement. “We have directed Affirm, Afterpay, Klarna, PayPal and Zip to submit information so that we can report to the public on industry practices and risks.”

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About the author

Jaël Bizouati-Kennedy is a former full-time financial journalist and has written for several publications including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She has also worked as a Vice President/Senior Content Writer for major financial firms based in New York, including New York Life and MSCI. Jaël is now a freelancer and most recently worked together with Dr. Sean Manion authored the book Blockchain for Medical Research: Accelerating Trust in Healthcare. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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