How is Buy Now, Pay Later (BNPL) usage impacting credit scores today? What do financial institutions have to keep in mind when considering reporting to credit bureaus? Can BNPL be used to build credit? To answer these questions, equipifi is featuring interviews with credit bureaus to discuss BNPL as a credit product.
This week, equipifi’s SVP of Marketing Jazzy Zhu sits down with Laura Eufrasio, Director of Consumer Lending at TransUnion®, to discuss how BNPL relates to creditworthiness and how TransUnion works with financial institutions.
Jazzy: Hi Laura! Thank you for joining me today. Would you please tell us a little about yourself and your role at TransUnion?
Laura: Yeah, absolutely. My name is Laura Eufrasio. I'm a Director at TransUnion. I focus primarily on consumer lending — but specifically around emerging credit trends like Buy Now, Pay Later. Before taking this role, I built the solution for BNPL for the credit bureau. I’m so excited to talk about what that means and the implications of including BNPL on the credit file.
Jazzy: That’s awesome! Before we get started. I think it’ll be helpful for us to talk about how TransUnion defines BNPL as a form of purchase financing and how consumers engage with it.
Laura: Yes, at TransUnion, we understand BNPL as a type of loan that’s generated through retail sales and tied to a single purchase. They tend to be shorter term, such as pay-in-four loans, and are interest free. They’re also transactional, which means they experience potentially frequent usage. There’s another type of loan we call point-of-sale (POS) installment lending which, like BNPL loans, are also generated through retail sales and tied to single purchase. Unlike what we call “BNPL,” POS installment lending may be longer term and can be interest bearing. However, because they’re transactional and potentially see frequent usage just like BNPL loans, we also treat these loans differently.
Jazzy: Super helpful, particularly since our partner financial institutions have a lot of flexibility when working with our platform. It sounds like depending on term length and interest rates, the BNPL loans they generate could be considered by TransUnion as either BNPL or POS installment lending. However, both are treated differently than other unsecured installment loans. Is that correct?
Laura: That’s correct.
Jazzy: And how does TransUnion treat these loans?
Laura: When we built the solution for BNPL at TransUnion, we knew these types of products were being taken out frequently, so we couldn't just throw it into the core credit file and let it go willy nilly.
What we did was create special tagging for BNPL loans. It still flows into standard Metro 2 ® reporting and dispute management, but it’s not impacting the credit score of the consumer. That's because these loans need to be treated differently. And that’s why we encourage financial institutions that work with us — and decide to offer and report on BNPL — to make sure it’s tagged and treated in our differentiated way.
Jazzy: So, when it comes to the question of whether to report, what’s TransUnion’s stance? There are no regulations today that stipulate any BNPL providers must report their loans to credit bureaus, so this is left up to financial institutions. We’ve also seen some BNPL FinTech’s furnish some data to credit bureaus, while others refuse until they know for certain how consumers will be impacted.
Laura: So, as an industry today, we're still waiting for major furnishers to send all of their data in order to create a new score model on top of that. TransUnion has been working very closely with all major BNPL lenders over the last five years. We have weekly, if not daily, conversations with them about sending data, and we're doing analysis and reporting to make sure they're comfortable sending us the data and that we can integrate it into the system.
While financial institutions do not have to report their BNPL loans today, they have an opportunity to work with their credit bureaus on integrating BNPL into credit files — and especially to make sure it’s tagged appropriately when working with us.
We always talk about how BNPL could be a stepping stone, right? Essentially, the idea is that today, you could be financing a pair of sneakers, but in the future, you might want to take out a loan for home improvement or an auto loan. And if you've demonstrated successful behavior through BNPL, that should be a way to indicate yes, you’re worthy of additional loans. While that's taken a little bit longer than we would've liked, we're well on our way to that being a reality. It's not just one person who has to turn it on. We all have to hold hands and jump into the pool together at the same time on this thing.
Jazzy: Is there a use case today where BNPL can build the picture of an individual’s creditworthiness with their financial institution when using their in-house product? We’ve heard of instances where our partner financial institutions were able to provide better interest rates and access to other lending products after seeing successful repayment behavior for BNPL.
Laura: Absolutely. In fact, the frequent use of BNPL today does create a blind spot for many lenders when there’s an area of borrowing and repayment behavior they can’t see. When financial institutions are able to fill in that picture on their own, particularly on an individual basis, it can definitely help lenders get more visibility.
Jazzy: So, can BNPL build creditworthiness?
Laura: Overtime, yes. And really, the key is to use the product responsibly.
You make the payments on time and treat BNPL like any other credit product. When you use BNPL thoughtfully, it can be a powerful tool for budgeting and financial management — and over time, it could potentially contribute to building a positive credit history.
While there's no magic formula for making payments on time and proving creditworthiness, we think as long as folks do make BNPL payments on time, we certainly want to include it positively into the scoring models.
Jazzy: I love that. And just for those of us who have been following the news… Now that FICO® scores are beginning to incorporate BNPL loans, how should lenders be thinking about it?
Laura: So, FICO announced it was launching a score incorporating BNPL, and we think it's a huge leap forward for reporting BNPL. FICO and other companies still need to work with the major credit bureaus in order to get that data onto their files. We still need to have at least one to two more major lenders furnishing this data before any sort of products can be turned on. But overall, it's a great step.
Jazzy: Thank you so much Laura. This has all been incredibly helpful today. For anyone who may have questions about how to work with TransUnion on reporting on BNPL, how should they reach out to you?
Laura : We have a dedicated team at TransUnion who can help you on your Buy Now Pay Later reporting journey. As a first step, you can email Emily Sherman, who is a Director of Alternative Solutions for help on proper reporting. She can be reached at Emily.Sherman@transunion.com
Disclaimer: The views and opinions expressed in this interview are solely those of the interviewee and do not necessarily reflect the views, opinions or positions of equipifi. equipifi and TransUnion are independent entities and are not affiliated, partnered or otherwise associated. The appearance of TransUnion in this publication does not imply any endorsement, partnership or representation between the two companies.
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