Peer-to-peer lending platforms offering buy-now-pay-later (BNPL) could soon benefit from better affordability assessment tools.
TransUnion has launched a set of tools to help lenders better assess the affordability of prospective BNPL borrowers and improve these consumers’ credit scores.
The consumer credit reporting agency said that up to 100 million US adults have used BNPL loans at least once in the past 12 months, but about nine per cent of applicants it studied have thin credit files and lenders do not have access to the valuable insights generated when consumers open and repay BNPL loans.
TransUnion said it has therefore introduced its point-of-sale suite of capabilities to give lenders a more holistic view of prospective BNPL borrowers’ risk and help these consumers get credit for their payments and establish long-term credit.
The initial capability will allow data analytics company FICO and credit rating firm VantageScore, lenders and fintechs to have enough time to ensure that they build future versions of their underwriting models that give consumers credit for good performance on point-of-sale products such as BNPL.
Read more: P2P firms expand into BNPL products
TransUnion aims to have a single standard for lenders to report data and accelerate adoption by lenders and scoring providers in the future.
“The inclusion of point-of-sale loans including BNPL into credit reports and other risk management tools can help tens of millions of consumers gain access to more credit opportunities and potentially secure better loan terms,” said Liz Pagel, senior vice president and consumer lending business leader at TransUnion.
“TransUnion has taken a measured approach in developing our solution suite, working with the top BNPL lenders over the past three years to craft solutions that benefit consumers and do not penalize them for using these products frequently.
“TransUnion’s approach helps lenders and consumers ensure credit activity is captured in a manner that maximizes benefits for consumers and to the overall credit ecosystem.
“The industry needs time to adjust, and each lender will adopt the point-of-sale tradelines and attributes at its own pace. Maximizing the financial inclusion impact requires broad usage of this valuable data in more credit decisions.
“Ultimately, given the prominence of FICO and VantageScore in the market, the biggest impact from the data will not be realized until the data migrates to the core file and these scores take into account consumers’ good behaviour.”
Earlier this month, TransUnion became the first credit reference agency in the UK to accept BNPL finance into UK consumer credit files.