Reporting BNPL Performance to Bureaus May Broaden Pool of Credit-Worthy Consumers

PYMNTS Intelligence has detailed that consumers opt for buy now, pay later (BNPL) plans because they’re convenient and accessible. More than half of the individuals that we’ve surveyed have said that they’d used installment options through the past year. And 76% of those consumers who used BNPL plans voiced high levels of satisfaction with those plans.

The plans are widely available, and our data notes that paying over time holds appeal for users across all income levels, even high earners, where a third of consumers making more than $100,000 annually had used BNPL.

For the consumers with low credit scores or even no credit scores, the movement toward including BNPL loans in credit and underwriting decisioning — as BNPL performance is harnessed by the credit reporting agencies — is gaining momentum.

The shift may have several positive effects effect: It can help those users build credit; expand the pool of borrowers for would-be lenders, and incentivize BNPL users to manage those obligations responsibly. The potential is significant, as PYMNTS estimated here that roughly a quarter of consumers are credit marginalized, having been rejected at least once when applying for traditional forms of credit, including credit cards.

Alternative Data and the Credit Bureaus

On Wednesday (March 19), BNPL provider Affirm said that beginning next month, it will feed information about all of its payment plans to Experian. The reporting will include its pay-over-time products, in addition to the monthly installments of longer-term loans that it already reports to Experian, including biweekly payment plans, Pay in 30 (single installment), Pay-in-2 and Pay-in-6 options.

In February, FICO said it would seek to add BNPL data to its credit scoring analysis. Joint studies with Affirm, the analytics company said, found that for the 85% of consumers who had opened a new BNPL account, there was generally a consistent impact on their FICO scores. It also found that impacts on FICO Score predictiveness ranged “from modest improvement to no adverse impact, across a range of different use cases.”

The read across here is that the there can be incremental improvement in the credit-worthiness profiles of BNPL users when alternative data are included. The Kansas City Fed noted in a report that “refining the types of alternative data used in credit scoring and expanding consumer knowledge and comfort with alternative credit-building products may help improve adoption of alternative data and consumers’ access to credit and financial well-being going forward.”

The additional impact of having BNPL included in credit scoring may be that consumers will be averse to “stacking” short-term loans, with an eye on keeping their debt loads more manageable and boosting their credit scores at the same time.

We note that the reporting of the short-term loans is a work in progress, and in terms of impacting credit scores (once they are fully included), will be likely be phased in over time. In detailing bi-weekly reporting of BNPL, Equifax noted in past releases that new coding will “classify BNPL tradelines including payment history 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.”

A positive BNPL payment profile can help smooth the path toward consumers being underwritten for credit cards and other types of loans that are paid down over time, including car loans.

As for credit performance, Klarna has maintained in its SEC filing to go public that its 30+ day delinquencies are “72% lower than the credit card industry average of 4.2% in the United States based on data from the Federal Reserve Bank of St. Louis,” which translates to a delinquency rate of 1.2%. Affirm’s own filings reveal that 30+ day delinquency rates at the end of last year were 2.5%, similar to where they were during the pandemic.