The consumer finance industry continues to see a rising share of consumer use of Point-of-Sale (POS) lending and Buy Now, Pay Later (BNPL) purchase financing in the US. According to a consumer survey TransUnion conducted in Q4 2021, 41% of respondents self-reported using this new form of financing within the last twelve months, up five percentage points over a similar survey conducted the previous quarter.1 Rapid consumer adoption of these new forms of purchase financing is generating interest across lenders of all types.
Yet even with over 100 million US consumers having already used POS and BNPL financing, questions persist about the nature of the consumer turning to these new forms of purchase financing. How do the demographics, risk profile, and credit activity of applicants for POS/BNPL financing compare with consumers using other credit products? What are consumers’ motivations for using BNPL/POS and which consumer segments should lenders be targeting?
TransUnion explored these questions in two recent studies, uncovering some interesting insights that could, if incorporated into marketing and underwriting practices, help enhance lending strategies and positively impact lender growth and performance in this sector.
Exploring the POS applicant credit profile
TransUnion conducted a study looking at the credit score, age, wallet profile and other types of loans on file for over 6 million consumers who had applied for POS and BNPL financing over a 6-quarter period between 2019 and 2021. (Unless otherwise specified, we will henceforth refer to BNPL while referring to smaller, more frequent POS lending collectively as POS.)
In the study, we identified POS applicants by looking at the credit report inquiries pulled by POS lenders — meaning the POS applicants studied in our sample were viewed prior to any lender underwriting. The study compared consumer characteristics and credit profiles of these POS applicants to all other consumers with open loans of other product types — the general credit population already underwritten by other lenders.
Our research explores four narratives commonly used to describe the POS consumer. The findings reveal that while some of these narratives hold true, others do not. In fact, we observe a more nuanced view of the POS consumer, creating segments of opportunity for different lenders.
Narrative #1: POS applicants are younger.
When comparing the age distribution of POS applicants to that of the general credit population, we see POS applicants skew substantially younger. While consumers across all age groups have been using POS financing, nearly 60% of consumers applying for POS financing were 40 years old or younger.