BNPL and Point-of-Sale Lending

“Recently, 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. The below blog clarifies what is — and is not — happening with BNPL and point-of-sale lending at TransUnion today, and how BNPL data reporting is expected to evolve over time.”

Why is the whole industry talking about BNPL loan reporting?

Up to 100 million US adults* have used buy now, pay later (BNPL) loans or other point-of-sale loans at least once in the past 12 months, representing over a third of the credit-active population. Many of these consumers use these loans frequently, generating valuable data to help lenders assess risk and expand access to credit.

BNPL and point-of-sale loans are transactional (like a credit card swipe), but they’re underwritten as individual unsecured installment loans. Therefore, a consumer with normal shopping habits could originate several loans per year, which most existing credit models view as risky behavior. 

TransUnion quickly recognized that credit models will need to be updated to treat these trades as a new type of credit obligation — not as multiple, small unsecured installment loans. As traditional scores cannot yet take into account this new form of purchase financing, underwriting models will need plenty of time to adjust to a new product type (the industry hasn’t seen a new product type in recent history). 

What is TransUnion doing to incorporate this valuable data into the lending ecosystem?

BNPL and point-of-sale data will provide valuable signals to enhance lending decisions — particularly for younger, non-prime and new-to-credit consumers who use these products. 

Making these data mainstream and incorporating it into the core credit file is our goal — but not in 2022.

Where will the data reside in 2022?

BNPL and other select point-of-sale tradelines and attributes will be reported to a partitioned section of the TransUnion core credit file – where they will be excluded from delivery to existing scoring models and decisioning criteria until models have a chance to adjust. 

Default delivery of the core credit file will not include any BNPL and point-of-sale data, and current FICO® Scores and VantageScore® models will see no impact until these scoring providers choose to incorporate these data after additional analysis.  

How will lenders access the data?

Lenders that are ready to use the data in new models, or as an overlay to existing models, can choose to turn “on” the Point-of-Sale Solution Suite. Lenders with the service “on” will receive Point-of-Sale Tradelines and/or Point-of-Sale Attributes on their core file delivery, tagged clearly so their models can identify and treat them differently.

In the interim, lenders can leverage new TransUnion Point-of-Sale Attributes built from the BNPL and point-of-sale data to round out their understanding of a consumer’s financial position with actions such as incorporating the number of positive payments into inclusion criteria or including a consumer’s BNPL or point-of-sale balances in debt-to-income calculations.

The data will be reported in the Metro 2® format.

When will the data transition to the core TransUnion credit file?

To maximize the financial inclusion impact of these valuable data, the plan is to transition them to the mainstream credit ecosystem. This is TransUnion’s goal, but it will take some patience.

For the data to become a default part of the core credit file, key stakeholders must agree they’re ready: FICO® and VantageScore®; lenders and others who use models leveraging the credit file; point-of-sale lenders. Realistically, this may take a couple of years. 

TransUnion is committed to clear communication well in advance of this change so all users of our data can prepare.

Is the data live today?

TransUnion is working directly with large point-of-sale lenders that are committed to furnishing data in a way that helps consumers build credit. Many of these lenders have not reported before and need time to stand up both furnishing and disputes processes. It’s important to get these processes right to ensure accuracy and protect consumers.

The data will be available in 2022.

Of course, we will adjust our approach as appropriate to address market changes and industry or government guidance and/or regulation that happen in the future.