Much talk this week about BNPL, credit scores, and a looming debt spiral for some consumers. Affirm and FICO are partnering on a credit scoring model to enable proper reporting of BNPL loans. Shares of Affirm dropped as the company said it expects continued pressure on profits due to funding costs. According to a TV report, some BNPL operators are tightening credit standards to reduce risk. The US CFPB acknowledged some benefits of proper use of BNPL and advised consumers to be wary of medical BNPL and credit card debt.
In New Zealand, credit bureau Centrix worked with BNPL operators, including Affirm, Laybuy, and Afterpay, to provide real-time credit reporting for better lending practices. An estimated 10.5% of Kiwis have BNPL arrears. The new credit reporting is expected to assist BNPL lenders and protect consumers. Watch for this credit reporting model to get a close review in the US, UK, EU, Australia and other markets looking at regulations to protect consumers using BNPL. Meanwhile, consumers are turning to BNPL for grocery and essential purchases because of the tightening economy.
Affirm, FICO to create BNPL credit-scoring model
Affirm CEO Max Levchin said Tuesday the buy now, pay later company is partnering with data analytics company FICO “to build a first-of-its-kind credit scoring model that would enable buy now, pay later loans to be consistently, transparently factored into credit and lending decisions and to be reported to the credit reporting agencies. Affirm intends to “help the industry report buy now, pay later loans and make sense of them in the broader context of borrowing,” Levchin said. PaymentsDive
Affirm declines as financial turmoil drives up funding costs
Affirm shares slid as the buy now, pay later firm said it expects funding costs to remain elevated amid the recent financial turmoil, placing pressure on a key revenue metric. The company’s revenue-less-transaction-costs fell 9% to $167 million in the fiscal third quarter compared to a year earlier, it said Tuesday. Affirm expects higher funding costs will remain a headwind to RLTC as a percentage of its gross merchandise value over the coming few quarters. Bloomberg
Rejected for a buy now, pay later plan? It might not be your fault
Payment apps are tightening credit standards to focus on profitability. Some users of buy now, pay later apps might face something new when they try to use the payment method: rejection. Higher interest rates and recession concerns are challenging the business model behind services such as Affirm, Klarna and Sezzle, which say they are tightening credit standards to focus on making a profit rather than growth. Some customers say they have been caught off guard by unexpected denials or lower spending limits when they try to make purchases. Fox News
Fintechs clear credit path for 57% of subprime millennials
A Consumer Financial Protection Bureau (CFPB) study indicated that financially distressed consumers are saving through buy now, pay later (BNPL) services. If BNPL borrowers make payments on time, they pay zero interest. In contrast, the CFPB estimated most BNPL borrowers would have encountered interest rates between 19% and 23% using credit cards. The “FinTech Tracker®” examines the problem of consumers’ diminishing access to traditional credit and how fintechs are helping. PYMNTS
Hospitals market medical credit cards and BNPL options, and consumers should be wary
Healthcare providers are increasingly promoting financing options—such as medical credit cards and installment loans—instead of no-cost payment plans, according to a recent report by the CFPB. According to the CFPB, there is a severe risk and lack of transparency around these financial products, and patients should exercise caution. In fact, according to the report, using these financing products can end up costing patients more money long-term. Payments Journal
CFPB report highlights costly credit cards and loans pushed on patients
Financial companies work with healthcare providers to sign patients up for specialty credit cards and other targeted financing products. Synchrony, Wells Fargo, and Bread Financial lead the medical credit card market, according to the CFPB report. People used specialty medical credit cards or loans with deferred interest periods to pay for almost $23 billion in healthcare expenses for more than 17 million medical purchases from 2018 to 2020. They also paid $1 billion in deferred interest. CFPB
Debt spiral: Record number of buy now pay later accounts in arrears, credit bureau
Cleaner Mei said she used Afterpay to buy $120 meat packs for her family of six because she could not afford to pay upfront. “It’s my payday today, and I’m just about broke – that’s just food – and I’ve only got my meat so far. I need to go to Pak’nSave and spend the rest of my money there,” she said. “I can’t get out of it. I’m continuing to Afterpay all my meat from now on. It’s just a repetitive cycle that I’m stuck in now. I suppose it’s like a gambler, going to the machine and putting in $20,” she said. The latest figures from credit bureau Centrix show a record 10.5% of buy now pay later accounts were in arrears at the end of March. NZ Herald
New buy now pay later initiative aims to protect people in financial difficulty
A daily credit reporting system will tell buy now pay later (BNPL) providers if a new customer is behind on repayments with other providers to protect people in financial difficulty. Credit bureau Centrix is working with major buy now pay later providers, such as Afterpay, Zip and Laybuy, to launch the new initiative, PayWatch. The providers collectively represent more than 90% of BNPL customers. Centrix figures showed a record 10.5% of BNPL accounts were in arrears in March. NZ Herald
Centrix and ‘Buy Now Pay Later’ providers launch world-first PayWatch initiative to deepen customer protections
New Zealand credit bureau, Centrix, and leading BNPL providers, launched PayWatch – a world-first initiative designed to help protect consumers using multiple BNPL services when they are in financial difficulty. PayWatch credit reports allow Afterpay, Zip and Laybuy, which together represent more than 90% of BNPL customers, the ability to share overdue account data daily and flag when a consumer is behind on repayments. PayWatch gives BNPL providers valuable information about a consumer’s credit risk as they assess new account applications and monitor existing customers. Centrix
What does the buy now, pay later boom mean for food retailers?
As more shoppers turn to short-term loans to buy groceries, experts say there may be a shift in how people think about paying for essential goods. As a rising number of shoppers embrace buy now, pay later services to cover basics like grocery expenses, food retailers are finding themselves at the center of a disruptive trend that is altering many people’s financial relationship with supermarkets, according to industry and credit analysts. PaymentsDive
Recent BNPL Report news:
New BNPL research report profiles leaving US-Canada BNPL operators, their business models and analysis to help sellers choose the best BNPL partner. More details here.