BNPL Liabilities – Hidden in Plain Sight

EDGE Insights

Buy Now, Pay Later (BNPL) plans have garnered considerable attention over the past couple of years. Initially, headlines focused on explosive growth and the impact on e-commerce. While growth continues with BNPL lending in the U.S. expected to exceed $125 billion this year – the focus has shifted to mounting losses and regulatory scrutiny.

There’s far less understanding of how BNPL obligations affect consumer creditworthiness. Traditional credit databases contain almost none of the billions of dollars worth of BNPL loans, meaning these are hidden liabilities for other lenders (including other BNPLs).

Gorillas Missed

Part of the attraction of BNPL is that most plans aren’t reported to credit bureaus. Neither a hard inquiry nor a tradeline is created for the ”vast majority” of BNPL loans. As a result, there’s no impact on your credit report or score.

Experian, Equifax, and TransUnion are keen to collect BNPL data to expand databases that cover nearly every other credit product. Credit bureaus operate reciprocal “give-to-get” businesses with reporting (or furnishing) a voluntary business decision for individual lenders. Since bureau reporting would almost certainly reduce the appeal of BNPL plans for consumers, it’s anybody’s guess how much BNPL lenders eventually furnish to the bureaus.

Bureaus will never fully reflect BNPL obligations because over one-third of borrowers use BNPL at least once per month. Furnishers only provide data to credit bureaus on a monthly basis. So any new intra-month BNPL loans won’t show up on a credit report until the next monthly furnishing cycle.

What’s more, the bureaus are taking different approaches to where BNPL data will be warehoused, how it will be reported, and whether it will be factored into credit scores. For the foreseeable future, the FICO® and Vantage® scores utilized by most lenders are unlikely to reflect BNPL loans given credit risk models’ need for consistently furnished data at massive scale.

Looking Elsewhere

With the first payment due at checkout, BNPL obligations appear almost immediately in a consumer’s bank account. There are a number of services that enable businesses to access bank transactions (though, as explained in another Edge blog post, knowing how to ingest and analyze that data requires additional capabilities).

It’s possible to repay some BNPL plans with a credit card, in which case the obligation won’t separately show up as a checking or savings debit.  However, credit card issuers (notably Capital One) are increasingly preventing consumers from using their credit limits to repay low- or no-interest BNPL debt.

Overall, BNPL obligations hidden from bureau reporting are reliably found in bank transaction data. In 2022, Edge saw 70% of consumers with traditional loans also borrowing with BNPL plans. This insight helps to reconcile estimates that more than 1 in 4 consumers used BNPL this year, while about 1 in 10 consumers have taken on at least one personal loan. So if you can access consumers’ bank data, then you’ve taken an important first step toward understanding their complete financial picture.

Let's start a conversation