TransUnion study finds that point-of-sale financing applicants are more likely to be younger and below prime
As both awareness and usage of Buy Now, Pay Later (BNPL) and Point-of-Sale (POS) financial offerings continue to grow, a new study from TransUnion examined the risk profiles of consumers who use these products and found that in comparison to the general credit population, BNPL/POS consumers tend to be younger and belong to below prime risk tiers. These consumers are also likely to be more active during the holiday season and tend to use the same POS lenders multiple times.
The study, “Evolution of the Maturing POS/BNPL Consumer,” was released during the 2022 LendIt FinTech Conference and examined the behaviors and demographics of more than 9 million consumers with a point-of-sale financing inquiry from Q4 2019 to Q4 2021.
BNPL and POS financing has emerged as an extremely popular offering among consumers in recent years. In a recent TransUnion survey, seven in 10 consumers (71%) said they have heard of BNPL, and 38% said they had used such services in the last year.
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Gen Z and Millennials (ages 18-40) make up a large majority of consumers who applied for such financing during the study period (61%). In comparison, only 35% of the general credit active population belongs to this age group. Additionally, POS financing applicants were more likely to belong to higher risk tiers. Approximately 43% of all POS financing applicants were found to belong to the subprime risk tier compared to 15% of the general credit active population.
“The simplicity and convenience of BNPL and POS are driving consumer interest in these products,” said Salman Chand, vice president of consumer lending at TransUnion. “Consumers who are most likely to utilize Point-of-Sale financing tend to be younger and below prime. But as this market matures, we will likely see more consumers across the board becoming aware and starting to use these products.”
The study also found that consumers were more likely to use POS financing during the holiday shopping season, with 30% of all applicants having applied for a POS financing loan during the approximately month-long period that encompasses Thanksgiving and Christmas. Additionally, consumers were also more likely to have gone back to the same lender when applying for multiple POS financing loans – 71% of applicants with three or more inquiries used the same lender for all of these inquiries.
“POS consumers are very likely to use the same lender to meet most of their shopping needs, signaling a great opportunity for lenders to build customer loyalty by getting in front of consumers early. And as lenders think about launching or promoting their BNPL and POS products, the holiday shopping season is an ideal period to focus their efforts due to the much higher level of consumer demand during this period,” added Chand.
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BNPL and POS Loans on the Credit File Can Help Promote Financial Inclusion
To help promote financial inclusion opportunities for this growing population and allow the financial community to accurately capture credit behaviors of consumers using BNPL loans and other point-of-sale installment products, TransUnion announced a future launch of a suite of Point-of-Sale solutions earlier this year. The solutions allow for point-of-sale lender trades to be received through the traditional credit reporting process, with specific Metro 2® reporting guidance that ensures FCRA compliance.
Financial institutions will be able to opt-in to receive these tradelines as part of their existing credit data delivery. Default credit report delivery, which feeds existing scoring models, is unaffected. Over time, as the industry works to enhance models with these tradelines, it is expected that many lenders will choose to use this information in addition to their existing models to help expand their buy boxes – accelerating the consumer impact and promoting financial inclusion.
“Adoption of BNPL and POS loan data represents one of the most important financial inclusion opportunities in a generation, helping the millions of people in the U.S. who have slim, damaged, or nonexistent credit files build credit responsibly. While there is currently a lot of noise in the market as to how this data asset will be incorporated into the credit file, the ultimate goal is to have a single standard for POS lenders to report this data and to accelerate adoption by lenders and scoring providers in the future,” said Liz Pagel, senior vice president of consumer lending at TransUnion. “TransUnion’s approach, which will include the data on the core file in 2022 with an “on/off” switch, will give our data users time to adjust their models to use the data in a way that helps consumers build credit.”
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