BNPL drives financial inclusion

Contrary to what some US media sources are saying, Buy Now Pay Later is not phantom debt. In my humble opinion, it’s a great example of innovation and how credit products continually evolve to meet the needs of consumers.

Consumer-driven demand for flexible payment options for online shopping and credit products that better align with weekly or fortnightly pay cycles offered innovators a once-in-a-lifetime opportunity.

Enter Buy Now Pay Later.

Now as this industry matures, a new challenge has arisen. Innovation moves quickly, and credit bureaus do not. Today we find ourselves at a juncture: BNPL needs to find its place in the credit information market or remain the target of attention-grabbing headlines and face disproportionate regulation.

Held back by legacy infrastructure

For reasons we have discussed in our blog, traditional credit bureaus in the UK do not have the technical ability to ingest and distribute BNPL data in a manner that fits the product.

Legacy reporting formats and monthly reporting cycles make maintaining an accurate measure of BNPL usage a near impossible task, causing significant repercussions for every party involved.

• Consumers cannot build or rehabilitate their credit profiles through the use of BNPL, denying them a potentially safer, cheaper, and faster option to do so.
• Non-BNPL lenders do not trust the quality and accuracy of BNPL data. We have anecdotal feedback from lenders that BNPL payments could provide a positive signal, but due to a lack of trust, granularity, and timeliness, this is omitted from decision-making, resulting in inefficient risk pricing and missed opportunities for improved lending performance.
• BNPL lenders continually face pressure from consumer groups and the media for a problem they are willing to address but are let down by bureaus, policymakers, and regulators.

The most disappointing part of this is that BNPL lenders are willing to report to bureaus. Klarna already does so in the UK, although as we understand it, it is not used by other lenders or incorporated into consumer-facing scores, and Afterpay is quoted saying, “We look forward to seeing specific plans from credit bureaus about how they would like to incorporate customer BNPL information into their reports—in a way that is reflective of how customers use this service to help manage their spending.”.

In our view, BNPL lenders are waiting for a better solution to reporting than what the bureaus can offer, and when that solution is available, we believe BNPL data has the potential to be one of the largest drivers of financial inclusion for our generation.

BNPL demands a better bureau

If BNPL lenders want to report their data, the lending market wants to use this data, and consumers want to use BNPL to build and rehabilitate their credit profile, then we need to find a way to make this happen!

Just as online shopping drove the need for BNPL, BNPL is driving the need for a better bureau. To build a better bureau, BNPL needs to select a partner they trust to maintain and share their data across the credit information market in a more effective way.

Enter Infact.

We’ve built a high-fidelity domain model that can represent modern financial products, like BNPL. Our FCA-authorised bureau is designed to complement the products and services offered by innovative lenders and support better consumer outcomes.

Our approach to supporting the BNPL industry and leading the transformation in the UK bureau market is based around four founding principles:

• Trust: BNPL lenders need to be able to trust that this partner has relevant deep credit referencing experience, a track record of innovating in the credit information market, and really understands how to handle customers’s data securely and at scale.
• Regulation: As an authorised credit reference provider, BNPL can be assured of the highest standards and alignment with their current and future regulatory obligations.
• Collaboration: We are working closely with BNPL lenders to understand the nuances in reports that their products require while simultaneously not special casing the industry.
• Independence: BNPL lenders want to know that the partner they choose to handle their customers data is not influenced by or owned by a competitor.

Infact has built a globally scalable platform and is on a mission to help drive financial inclusion and a more effective credit information market. We believe that the BNPL industry has the opportunity to help realise this mission and deliver better consumer outcomes, and we are committed to working tirelessly to achieve this.

If you want to discuss how we are building a real-time credit bureau or join our mission, book in some time here.

Infact Systems Limited (“Infact”) is registered in England and Wales at 2-7 Clerkenwell Green, London, EC1R 0DE (Company No. 14032664). Infact is Authorised and Regulated by the Financial Conduct Authority (FRN: 978629)