BNPL and Point-of-Sale Lending: Insights for Lenders and Furnishers

Summary: What’s happening with BNPL reporting?

• While buy now, pay later (BNPL) data is not currently included in TransUnion credit reports, furnishing is on track to begin this year
• BNPL data will be tagged and segmented into a section of the core credit file that does not flow into scores and attributes powered by TransUnion data
• Initially, the data will only be visible to consumers
  • Once several furnishers are live, TransUnion customers will be able to turn “on” TransUnion POS Attributes for online delivery
  • The data will remain excluded from non-BNPL scores and attributes
• Over time, BNPL data will likely be incorporated into credit scores and models

The “why” and “how” of BNPL

Buy now, pay later and point-of-sale loan data offer valuable insights that could improve lending decisions, especially for the disproportionately younger, often non-prime consumers who utilize these services. Although most BNPL lenders don’t yet report tradeline and payment data to credit bureaus for inclusion in consumer credit files, major BNPL lenders understand the benefits of reporting this data and are actively working with TransUnion to incorporate it into consumers’ core credit files.
 

A shared commitment to optimize and include BNPL data

TransUnion has been working with BNPL lenders for more than five years to ensure the data is being thoughtfully incorporated. This is both to avoid any undue negative impacts on scores and credit accessibility, and to optimize its potential role in helping consumers build credit with on-time payments.

We agree with these lenders that BNPL and point-of-sale loans should be treated as a new loan category, because although they look like unsecured installment loans, they behave differently — and we have made significant investments accordingly. In 2022, TransUnion launched capabilities for ingesting and tagging BNPL data as a new loan type, preventing such data from immediately flowing into scores, attributes and credit decisions. In the meantime, BNPL lenders that intend to report BNPL data and point-of-sale loans to TransUnion have been working to stand up furnishing and disputes processes — often from the ground up.

The work is ongoing, but if it continues to progress we expect to see tradelines start flowing into consumer-facing credit files this year. These loans will only be visible to consumers at first, giving them the opportunity to begin understanding how the data will be incorporated. As more BNPL lenders become furnishers over time, the data will become available for underwriting and, if appropriate, incorporated into scores. 

Why BNPL loan reporting is different

More than 100M US consumers — around 50% of adult Americans — have used BNPL loans, according to new research from TransUnion. Many of these consumers leverage these loans frequently, generating valuable data to help lenders assess risk and expand access to credit.

BNPL and slightly larger point-of-sale installment loans are transactional (like a credit card swipe) but structured as individual unsecured installment loans. Therefore, a consumer using BNPL or point-of-sale loans could originate several loans per year, which most existing credit models are likely to interpret as risky behavior. 

TransUnion recognizes credit models will likely need to be updated to treat these trades as a new type of credit obligation and not as multiple, small unsecured installment loans. As traditional scores cannot yet properly incorporate this new form of purchase financing, underwriting models will need plenty of time to adjust to a new product type (as the industry hasn’t seen one in recent history).  
 

Plans to incorporate BNPL data into the lending ecosystem

TransUnion has carefully designed how point-of-sale data will ultimately enter the credit ecosystem to benefit both consumers and financial institutions.

 By using unique tags and a filtering mechanism within the core credit file, TransUnion will enable point-of-sale data availability on the core credit report — but will initially prevent the tagged data from being delivered to customers or affecting TransUnion credit scores and attributes within the environment (e.g., VantageScore® 3.0 and TruVisionTM trended data), so as to avoid unexpected or unintended impacts on consumer credit scores. 

 For the foreseeable future, default delivery of the core credit file will not include any BNPL or point-of-sale data, whether that data is going into generic scores or lenders’ custom models. Current FICO® Scores and VantageScore® models will see no impact until scoring providers choose to incorporate this data after additional analysis. 

Point-of-sale raw data and attributes will be made available for lenders to use as soon as we have critical mass of BNPL data reported. TransUnion customers will then individually decide if and when they’re ready to incorporate the data into their credit strategies or custom models. Initially, we expect the data will be used as an overlay to existing strategies.

Availability of BNPL data for underwriting

Once critical mass for reporting has been reached, lenders ready to leverage the data can choose to turn the TruVision Point-of-Sale Solution Suite “on.” Lenders with the service toggled on will receive TruVision Point-of-Sale Tradelines and/or Point-of-Sale Attributes on their core file delivery, tagged clearly so their models can identify and treat these attributes differently.  

Once the data goes live, lenders can choose to use new TruVision Point-of-Sale Attributes built from BNPL and point-of-sale data to round out their understanding of consumers’ financial positions and payment histories. 

Looking ahead 

TransUnion is continuing to work directly with large point-of-sale lenders committed to furnishing data in a way that could help consumers build credit. Many of these lenders have not reported before and need time to stand up both furnishing and disputes processes — as it’s important to get these processes right to better ensure accuracy and protect consumers. We’re excited some BNPL lenders have communicated their intentions to report very quickly, and others are not far behind — but a change of this magnitude takes time. In the meantime, we remain ready and willing to adjust our approach based on in-market changes, government guidance and regulations that may occur in the future. 
 

VantageScore, FICO and TransUnion weigh in on BNPL and financial inclusion

• VantageScore: “Buy now, pay later (BNPL) is helping many consumers access short-term credit for shopping at a time when prices are rising rapidly. BNPL has given access to credit to those consumers who would otherwise not have access through traditional methods. We think adding this data to credit scores may help drive broader financial inclusion and are working rapidly to incorporate this into VantageScore models,” said Silvio Tavares, President and CEO of VantageScore. 
  
• FICO: “FICO is committed to financial inclusion and expanding credit access by leveraging more data where available and supported by empirical analysis,” said Sally Taylor, Vice President and General Manager of FICO Score. “These are top priorities at FICO, and we look forward to working with TransUnion to determine the best approach for inclusion of BNPL data in the credit file considered by the FICO Score family of products.” 
  
• TransUnion: “BNPL loan data could be the key to one of the most important financial inclusion opportunities in a generation, helping the 60 million people in the US who have slim or non-existent credit files build credit responsibly. But how the credit reporting industry collects and treats this data may matter more than the data itself,” said Liz Pagel, TransUnion’s SVP of Consumer Lending.* 

*Liz Pagel wrote an op-ed for American Banker discussing the financial inclusion opportunity underpinning BNPL and point-of-sale reporting, and encouraging alignment across the credit reporting industry for collecting and treating the data. For more information on how TransUnion is driving innovation and leading the industry on BNPL and point-of-sale lending, we invite you to  read Liz’s op-ed here. 

BNPL consumer resources

For consumers looking for guidance on how to use  buy now, pay later loans responsibly, click here.