Tag: payment data

BNPL is a misunderstood form of credit. In fact, many consumers are unaware that it is credit at all and view it simply as a mode of payment. This guide debunks common BNPL myths to explain what BNPL data will mean for lenders and consumers. In the past year, Experian collected more than 130 million buy now, pay later (BNPL) records from four major BNPL fintech lenders and conducted the most comprehensive analysis of BNPL data available today. The results provided valuable insights on: Who are the consumers using BNPL loans? What is the nature of their current mainstream credit relationships? What do their current BNPL behaviors look like? BNPL myth-busting: Who’s using it, how much are they spending and how risky are BNPL loans? Since BNPL launched in the United States in the 2010s, BNPL has exploded into the consciousness of online shoppers, especially during the COVID-19 pandemic.  According to Forrester, Millennials are the biggest adopters of BNPL at 18%, followed by their younger counterparts in Gen Z at 11%.1 But looking at statistics like these without additional analysis could be problematic.  The dramatic growth of leading BNPL fintechs such as Klarna, Affirm and Afterpay has demonstrated how strongly these services resonate with consumers and retailers. The growth of BNPL has attracted the attention of established lenders interested in capitalizing on the popularity of these services (while also looking to minimize its impact on their existing services, such as credit cards or personal loans). Meanwhile, the Consumer Financial Protection Bureau (CFPB) has urged caution about potential risks, calling for more consistent consumer protections market-wide and transparency into consumer debt accumulation and overextension across lenders. The underlying assumptions debated are that BNPL is used: Predominantly by young people with limited incomes and credit history To pay for frequent, low-value purchases using a cheap and readily available source of credit As a result, it is often seen as a riskier form of lending. But are these assumptions correct? Using data from more than 130 million BNPL transactions from four leading BNPL fintech lenders, we’ve obtained a more detailed and comprehensive understanding of BNPL users and their defining features. Our findings look somewhat different to the popular stereotypes. Myth 1: BNPL is used only for low-value purchases According to our analysis, most BNPL purchases, 95 percent are for items costing $300 or less.2 Some of it is low-value, but not all. In fact, we found that the average purchase using BNPL was similar to that of a credit card, at $132.Average transaction sizes have increased 10 percent year-over-year, and we now see BNPL purchases for goods costing well over $1,000. We also see that consumers take out an average of 5 BNPL loans in a year and 23 percent of them have loans with more than one BNPL provider at a time. Myth 2: BNPL is simply an easier payment method Consumers see BNPL as a simple, quick and convenient way to pay. But, as shoppers receive goods for which payment is deferred, it’s also a form of credit. However, unlike short-term high-interest loans, BNPL credit comes at zero cost to the borrower, with some, but not all BNPL fintech providers charging late payment fees – fueling many borrowers’ sense that it’s an easy way to pay, rather than a loan. Myth 3: Only Gen Z shoppers aged 25 and below are using BNPL Younger shoppers are slightly more represented in the data transactions, but our analysis shows consumers of all ages use BNPL. BNPL is going mainstream, and its appeal is widening. The average age of BNPL consumers is 36 years old, with an average credit history of 9 years.2 The ease of use of these services at the checkout means they have a broad appeal. Over half of U.S. adults have reported using a BNPL service at least once. Despite Millennials and Gen Z having used BNPL financing the most, Gen Xers are not too far behind in usage, with 52% having used it.2 We anticipate that in the use of BNPL will continue to grow as more customers become more familiar with the benefits, and the diversification of products continues. Understanding the opportunities this growth presents to both consumers and lenders is critical to protecting their interests. And helping to facilitate access to credit, enabling responsible spending, while also limiting risks and providing services that consumers can afford is also critical. Download the full guide for additional myths we’re exposing We will take a deep dive into what our early data analysis suggests about the market and the BNPL myths our analysis is exposing. Additionally, we will examine: Why BNPL data matters to providers and lenders How BNPL data can improve visibility of consumers’ creditworthiness Ways in which transparency of BNPL data could benefit consumers 1The Buy Now, Pay Later (BNPL) Opportunity,” Forrester Report, April 29, 2022.2Experian data and analytics derived from 130M+ BNPL transactions

From awarding bonus points on food delivery purchases to incorporating social media into their marketing efforts, credit card issuers have leveled up their acquisition strategies to attract and resonate with today’s consumers. But as appealing as these rewards may seem, many consumers are choosing not to own a credit card because of their inability to qualify for one. As card issuers go head-to-head in the battle to reach and connect with new consumers, they must implement more inclusive lending strategies to not only extend credit to underserved communities, but also grow their customer base. Here’s how card issuers can stay ahead: Reach: Look beyond the traditional credit scoring system With limited or no credit history, credit invisibles are often overlooked by lenders who rely solely on traditional credit information to determine applicants’ creditworthiness. This makes it difficult for credit invisibles to obtain financial products and services such as a credit card. However, not all credit invisibles are high-risk consumers and not every activity that could demonstrate their financial stability is captured by traditional data and scores. To better evaluate an applicant’s creditworthiness, lenders can leverage expanded data sources, such as an individual’s cash flow or bank account activity, as an additional lens into their financial health. With deeper insights into consumers’ banking behaviors, card issuers can more accurately assess their ability to pay and help historically disadvantaged populations increase their chances of approval. Not only will this empower underserved consumers to achieve their financial goals, but it provides card issuers with an opportunity to expand their customer base and improve profitability. Connect: Become a financial educator and advocate Credit card issuers looking to build lifelong relationships with new-to-credit consumers can do so by becoming their financial educator and mentor. Many new-to-credit consumers, such as Generation Z, are anxious about their finances but are interested in becoming financially literate. To help increase their credit understanding, card issuers can provide consumers with credit education tools and resources, such as infographics or ‘how-to’ guides, in their marketing campaigns. By learning about the basics and importance of credit, including what a credit score is and how to improve it, consumers can make smarter financial decisions, boost their creditworthiness, and stay loyal to the brand as they navigate their financial journeys. Accessing credit is a huge obstacle for consumers with limited or no credit history, but it doesn’t have to be. By leveraging expanded data sources and offering credit education to consumers, credit card issuers can approve more creditworthy applicants and unlock barriers to financial well-being. Visit us to learn about how Experian is helping businesses grow their portfolios and drive financial inclusion. Visit us

Reporting positive rental payment histories to credit bureaus has been in the news more than once in recent months. In early November, Freddie Mac announced it will provide closing cost credits on multifamily loans for owners of apartment properties who agree to report on-time rental payments. In July, California began requiring multifamily properties that receive federal, state or local subsidies to offer each resident in a subsidized apartment home the option of having their rental payments reported to a major credit bureau. And while reporting positive rental payments to credit bureaus may not yet be part of the multifamily mainstream, forward-thinking operators have already been doing it for years. Below is a quick primer on this practice and its benefits. Why do renters need this service? A strong, positive credit history is critical to securing car loans, credit cards and mortgages – and doing so at favorable interest rates. Unfortunately, unlike homeowners, apartment residents traditionally have not seen a positive impact on their credit reports for making their rent payments on time and in full, even though these payments can be very large and usually make up their largest monthly expense. In fact, renters are seven times more likely to be credit invisible – meaning they lack enough credit history to generate a credit score – than homeowners, according to the Credit Builders Alliance (CBA). This especially impacts lower-income households and communities of color. Renters make up approximately 60% of the U.S. households that make less than $25,000 a year, while Black and Hispanic households are twice as likely as White households to rent, according to the CBA. Experian is among the organizations working with the Consumer Data Industry Association (CDIA) on the association's Rental Empowerment Project. Through the REP, CDIA and its partner organizations seek to increase the reporting of rental payment history information by landlords and property managers through the development and adoption of a uniform, universal data reporting format for landlords and property managers to use. How does reporting positive rental payments to credit bureaus have an impact on a resident's credit history? The impact on any individual renter will obviously vary because of a wide array of factors. But to get some sense of the potential impact reporting on-time rental payments can have, consider the results of the CBA's Power of Rent Reporting pilot. In that test, 100% of renters who started off with no credit score became scorable at the near prime or prime level. In addition, residents with subprime scores saw their score increase by an average of 32 points. How does reporting positive rent payments benefit rental-housing owners and operators? Reporting positive rental payments provides residents with a powerful incentive to pay their rent on time and in full. And because there’s not a huge percentage of apartment communities currently doing this, helping residents build their credit history in this manner can offer a real competitive advantage. Learn more

Nearly 28 million American consumers are credit invisible, and another 21 million are unscorable.1 Without a credit report, lenders can’t verify their identity, making it hard for them to obtain mortgages, credit cards and other financial products and services. To top it off, these consumers are sometimes caught in cycles of predatory lending; they have trouble covering emergency expenses, are stuck with higher interest rates and must put down larger deposits. To further our mission of helping consumers gain access to fair and affordable credit, Experian recently launched Experian GOTM, a first-of-its-kind program aimed at helping credit invisibles take charge of their financial health. Supporting the underserved Experian Go makes it easy for credit invisibles and those with limited credit histories to establish, use and grow credit responsibly. After authenticating their identity, users will have their Experian credit report created and will receive educational guidance on improving their financial health, including adding bill payments (phone, utilities and streaming services) through Experian BoostTM. As of January 2022, U.S. consumers have raised their scores by over 87M total points with Boost.2 From there, they’ll receive personalized recommendations and can accept instant card offers. By leveraging Experian Go, disadvantaged consumers can quickly build credit and become scorable. Expanding your lending portfolio So, what does this mean for lenders? With the ability to increase their credit score (and access to financial literacy resources), thin-file consumers can more easily meet lending eligibility requirements. Applicants on the cusp of approval can move to higher score bands and qualify for better loan terms and conditions. The addition of expanded data can help you make a more accurate assessment of marginal consumers whose ability and willingness to pay aren’t wholly recognized by traditional data and scores. With a more holistic customer view, you can gain greater visibility and transparency around inquiry and payment behaviors to mitigate risk and improve profitability. Learn more Download white paper 1Data based on Oliver Wyman analysis using a random sample of consumers with Experian credit bureau records as of September 2020. Consumers are considered ‘credit invisible’ when they have no mainstream credit file at the credit bureaus and ‘unscorable’ when they have partial information in their mainstream credit file, but not enough to generate a conventional credit score. 2https://www.experian.com/consumer-products/score-boost.html