CW: Inflation, cost of living and the impact on consumer purchasing certainly coincide with the rise of buy now, pay later (BNPL) usage. More consumers are taking advantage of this type of borrowing for many reasons. In some instances, they can get no interest money if they pay in four or five installments. Plus, the BNPL services often don’t require a credit report. In many markets, this data is not yet reported to credit bureaus, so it doesn't impact a consumer’s credit score.
If you look at traditional credit data, the overall indebtedness of these borrowers may not be apparent. Collaborating with a firm with insights into consumers operating in the BNPL realm — how they're performing on those accounts, their true overall indebtedness, etc. — is going to become increasingly important as these offerings gain popularity.
TransUnion has great insights on BNPL markets from the US and UK, Canada and India. We've done studies on which consumers use these products, how they use them, and their overall risk profiles. We have data on how these consumers perform on traditional trades when using BNPL versus consumers who don’t use BNPL. We see what's happening in many developed and developing markets across the globe. In short, TransUnion can provide an early view of what you can expect as these offerings (and this market) continue to grow.
RG: I can imagine a consumer in this market watching their near-term and retirement savings slowly erode as they use those funds to meet obligations. With no clear improvement in the economic forecast, can lenders help those consumers seeking ways to protect themselves from this downturn with debt consolidation or balance transfers?
CW: I actually think there are opportunities here. Increased cost of living and interest rates create a double whammy: Consumers are carrying higher balances and paying more in interest on them because of rising rates — putting a real squeeze on them. This presents an interesting opportunity to employ insightful products that help intelligently find consumers who would benefit.
Traditional debt consolidation loans tend to be those using a personal loan to consolidate credit card debt. In most markets that’s a cheaper option, but balance transfers are also a possibility. As interest rates rise, and cards and personal loans — typically high-cost products from an interest rate perspective — become more difficult to maintain, monthly payments are going up and borrowers are left facing a significant amount of cumulative debt. This is exactly when lenders can reach out to existing customers and perhaps even prospects with whom to build new relationships.
RG: Seems like an interesting opportunity. How can lenders offer these types of loans successfully?
CW: As a personal loan lender, presenting debt consolidation loan offers to consumers who have relatively high-cost credit cards with high balances can prove to be a win-win situation: You can lower their interest and monthly payments, consolidate payments, and hopefully get them through this challenging time — subsequently helping cultivate loyalty to your institution.
To make the most of these opportunities, it ultimately comes down to having the tools to differentiate between vulnerable consumers who may be on the verge of collapse, and more resilient consumers who are just looking to get back on track.
TransUnion has done several studies in different markets looking at debt consolidation lending, and methods to find and target resilient versus vulnerable borrowers. There may be 100 consumers with marginal credit scores out there, and we can identify the 40 or 50 who are good bets. TransUnion can help find those consumers who are going to outperform their basic credit scores.