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Tackling the data deficit in BNPL

A lack of transparency in lending is an old problem made new again with BNPL. According to concerning reports, the UK government plans to delay regulation of the BNPL industry. But behind its ease of use, BNPL could create gaps in data without oversight and transparency. 

Without the right regulation, financial services could operate in an environment of fragmented, data. This lack of data transparency could lead to poorer decisions and higher risks. 

Delaying regulation could make consumers vulnerable, while lenders continue approving loans on incomplete data. As BNPL expands, the need for comprehensive insights surges. And consumers and lenders alike would benefit from the transparency and accountability regulation can provide.

Let’s get into it. 👇

The risks for consumers

While BNPL offers convenience, it can also carry significant risks when data practices and regulations are lax. While some BNPL are being proactive with their checks, not every provider is following this approach, and without sufficient affordability checks, consumers could take on more credit than they can afford. Without full data sharing, fragmented data means lenders lack insights into their existing debts and obligations.

In addition, the lack of transparency across multiple BNPL platforms allows consumers to accumulate debt undetected. No single lender can see the total picture, enabling borrowers to become overextended. Unregulated fees and interest can then multiply rapidly, spiralling out of control.

The right regulation would enforce comprehensive checks and strict affordability assessments based on consumers’ full financial profiles - for all providers. Plus oversight helps to collect and connect data across lenders to prevent the accumulation of excessive, unmanageable debts. While this may restrict access for some, it protects many from financial quicksand.

In essence, improved standards guide consumers toward responsible borrowing behaviour. 

But what about the risks to lenders? 👇

The risks to lenders 

Lenders also face risks in an unregulated BNPL environment devoid of data transparency. With no centralised reporting, lenders cannot access comprehensive insights into applicants’ financial situations. A potential borrower’s existing BNPL debts across multiple platforms could be unknown. This limits risk analysis and informed decision-making.

As we know, fragmented, low-quality data prevents lenders from accurately assessing creditworthiness. And hidden BNPL debts obscure consumers’ true risk profiles and debt burdens. This means lenders could be blindly approving loans based on incomplete pictures.

Without regulation, lenders lack holistic visibility into applicants’ incomes, obligations, credit histories, and affordability. Missing or inadequate data leads to poorly judged lending decisions.

But the right regulation would benefit lenders by improving transparency (something this industry desperately needs). Oversight would also enable responsible lending based on robust, high-quality insights into consumers’ complete financial lives.

But the longer regulation is delayed, the longer lenders will continue accumulating unnecessary risk through BNPL’s data gaps. 

The need for better data

It’s clear that implementing oversight to improve risk management and data transparency should be a regulatory priority for BNPL. Mandating standardised reporting across all BNPL lenders would provide long-overdue centralisation. This would paint complete pictures of borrowers’ scattered debts and risk factors. This consolidated data minimises blind spots for both consumers and lenders.

For lenders, centralised data equips them to make the best decisions based on consumers’ true risk profiles. No longer would hidden data gaps obscure analysis. 

We think all stakeholders benefit when lending is based on comprehensive data instead of incomplete snapshots. 

Though regulation poses challenges, increased transparency and accountability should be priorities.

The need for timely regulation

This latest BNPL news compounds a long-standing lack of transparency in financial services. Allowing BNPL to now operate as a data blind spot fans the flames further. Self-regulation has proven to be insufficient. 

The right regulation could enable responsibility while preserving convenience. And with improved transparency, lenders can finally assess creditworthiness based on complete information rather than incomplete data samples. 

Only rigorous data collection requirements can provide the visibility needed to ensure responsible BNPL borrowing and lending. Done right, regulation will cover data gaps while retaining accessibility.



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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 18 August, 2023, 12:30Be the first to give this comment the thumbs up 0 likes

Oh, c'mon, what does this have to do with regulation?  

I want to buy something. I don't have enough money. The seller offers to give me installment purchase aka BNPL. I take it or I leave it. There's no role for regulator.   

IMO, the moment I don't have enough ready cash, then it's not affordable. No amount of rulemaking can create a tenable notion of affordability once a transaction enters credit mode. Howsoever regulation defines affordability - e.g. EMI should not exceed 35% of take home pay - and decrees that so-and-so EMI is not affordable, there's nothing stopping the lender from increasing the loan tenor, reducing EMI and claiming that, voila, the loan is now affordable.

Thank God UK politicians have realized this and decided to stay away from regulating BNPL.

Nick Green

Nick Green


Purple Patch Broking Ltd

Member since

07 Dec 2020



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