Fintech’s, merchants, and big tech brands are forming new attractive buy-now-pay-later (BNPL) and hybrid instalment-based offerings shaking up credit card lending and forcing businesses to rethink data requirements and strategies. Growing at a rate of 39% per year and expected to exceed $260 billion by 2025, BNPL services can’t be ignored.

BNPL offerings are very attractive to both merchants and shoppers. With interest-free monthly payment terms, consumers (especially younger audiences) often prefer this method of payment to credit cards. Similarly, merchants find it increases basket size, reduces dropped baskets, and can cost the merchant a similar fee to credit cards.

However, while BNPL positions itself as a more fair and equal model for credit, it has come under fire from consumer groups that worry that it could put more consumers at greater risk of financial difficulty.

Regulatory changes are coming

The FCA says changes are urgently needed. The FCA’s recent Woolard Review sets out a series of recommendations for how the FCA can build a better market in the future and said BNPL products should be brought within the regulatory perimeter as a matter of urgency.

While BNPL data is not yet available through the credit bureaux, the FCA will no doubt take a view on how the CRA’s will access this data and whether it is shared.

Affordability was a key theme within the recent Woolard review and some BNPL firms have taken steps to integrate affordability despite this not being a regulated requirement yet. PAYL8R MD, Samantha Fogerty, recently announced on LinkedIn that PAYL8R, chose to take the regulated route from day one. Assessing affordability is at the core of PAYL8R and they have always performed affordability checks on consumers.

Consumers want affordability checks

Regulation will not only protect more people who use BNPL services, but interestingly, a recent study by Attest reveals that almost 49% of consumers would spend more using BNPL knowing that credit checks had taken place and with more transparency as to affordability.

Beyond spend intent, two thirds of customers said they would feel more comfortable using a provider that verified affordability before purchase, suggesting trust may become the next battleground for BNPL companies. Amongst students, the importance of this affordability check increases, with three quarters of them comforted by this process. 

BNPL data considerations

Taking all this into consideration, we believe there are several areas of focus that providers need to be aware of when buying data from the Bureaux for buy now pay later products and hybrid models:

• Impacts on existing bureau contracts: It might require a new model of data use and charging which might impact on existing contracts with the Bureaux and could mean additional expense.
• Existing Bureau contracts may be underused:  With some customers shifting spend from credit cards to alternative credit provider to use buy now pay later offerings this may result in under-used contracts against set minimum commitments, with only some customers being allowed to monetise this under-usage.
• Watch out for pricing variations: The Bureaux are often charging their own customers different costs for the same volume of quotation searches. In addition, costs vary for hardening of searches even when the customers are with the same Bureau with the same spend. Interestingly, some Bureaux are offering reasonable fixed pricing per conversion.
• Futureproof contract terms to allow flexibility: If new data or products are required for FCA regulations, it can sometimes be a challenge to adjust contract terms to allow flexibility this includes benchmarked pricing to avoid high charges whilst locked into a contract.
• Ensure flexibility of usage and minimum commitments: Given forecasting is difficult and numbers are large whilst maximising on discount.
• Ensure you purchase the best quality and accuracy affordability data: Some Bureaux offer better affordability suites of products and flexible contracts.

Futureproofing data contracts

If you’re looking at developing a BNPL or hybrid instalment-based offering, now is the time to ensure your data sources and contracts are flexible, reliable, and at the best possible price.