Experian reported the introduction of the Buy Now Pay Later Bureau, a proprietary offering that promises to fix the issue of underreporting BNPL information on credit reports. It is an interesting thought, but the market will need to decide if it is overkill or missing the point on credit scoring.
According to the announcement:
Credit scores should not be negatively impacted based on a consumer’s decision to use a BNPL product over other, more traditional forms of credit.
To solve for this, Experian will debut The Buy Now Pay Later Bureau™ later this spring. This first-of-its-kind bureau will protect consumer credit scores from negative impact while driving more inclusive and responsible lending.
The nature of BNPL does conflict with some credit scoring models because of purchasing velocity. If you have BNPL options, you open and close small loans quickly. For example, if you use BNPL loans to spend $100 at Macy’s, the term is typically four payments over six weeks. One payment comes when you transact, and three payments follow under the the traditional BNPL format.
Depending on how the scoring model works, you opened a loan but paid it out shortly afterward. In contrast, if you had a personal loan for $2,000, the term would more likely be 24 months or 36 months. Or, if you used a revolving credit card, the line might be set at $2,000, and as you paid the regular monthly payments, most scoring models would reflect the payments.
The question here is: Does BNPL warrant a separate bureau for credit reporting, or should BNPL reporting integrate as a tradeline at the top credit bureaus, Equifax, Experian, and TransUnion?
One issue that supports the notion that the “Buy Now Pay Later Bureau” may be putting the cart before the horse is that the announcement says “detailed information related to each BNPL transaction will be stored separately from Experian’s core credit bureau data.” The industry has enough issues in keeping credit bureau reporting pristine today.
Call me old school, but when the CFPB Director, Rohit Chopra, says, “Today’s report is further evidence of the serious harms stemming from their faulty financial surveillance business model,” I’d be scrambling to ensure that the issue is in check before doubling down with a separate reporting bureau.
A strong argument suggests you flag the data and keep it together. That is the standard today. Under the industry-standard Metro 2 format, indicators report on the loan type, such as installment or revolving. There are also indicators for loan terms and amounts. For example, a BNPL flag could just as easily indicate that the installment loan was simply a BNPL loan, or the loan terms of X months with a small balance could easily attribute the type.
Metrics seem good at Experian this year. Their Boost product looks right. Revenue is strong. But a separate reporting bureau for BNPL?
We’ll have to see how Equifax and TransUnion react for this one.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group