The chicken and egg issue about credit is that you need credit to get a credit score, but it is hard to get if you don’t have a credit score. Buy Now, Pay Later solved part of that issue with softer credit standards, but it did not help credit scores. The CFPB’s recent step into the space is undoubtedly a leap, but it will take a few months to compile feedback from fintechs and for a lucid plan to develop on credit reporting requirements.
TransUnion is off to a strong start in the interim, as Yahoo Finance reports.
TransUnion to Maximize Financial Inclusion Opportunities for Nearly 100 Million Consumers Using BNPL Loans
Up to 100 million U.S. adults have used now pay later (BNPL) loans at least once over the past 12 months. Still, financial institutions currently do not have access to the insights generated when consumers open and repay these new debt obligations, according to a new report. Now,
TransUnion says that it is launching a solution suite to “help people using BNPL loans get credit for their payments today and establish credit long-term.”
TransUnion expressed that the inclusion of point-of-sale loans on the consumer credit file is likely to benefit the populations most in need of new tools to build and improve their credit.
Things may change as U.S. regulators get involved. Expect better clarity on terms and fees, and with a pathway to recording consumer performance, it will likely fill an even more important goal: financial inclusion.
Maybe BNPL becomes the new credit card acquisition tool. Come in with a thin credit file, get a small loan and prove yourself, and before you know it, maybe a Discover, Mastercard, or Visa!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group