The BNPL data race: How to choose the right data

In 2020, the value of buy-now-pay-later (BNPL) transactions reached £6.4 billion (a 60-70% growth on the previous year). BNPL offerings appeal to both merchants and shoppers so this growth is expected to continue. With the offer of interest-free monthly payment terms, consumers prefer this method of payment to credit cards.

However, concerns from the Financial Conduct Authority (FCA) have called for changes to the market due to a worry that more consumers could be put at risk of financial difficulty through usage of BNPL.

Credit Bureaux are calling for more transparency in the BNPL sector. This means sharing new and historic BNPL lending data with the Bureaux to provide a more comprehensive view of consumer payments, including the number of outstanding BNPL loans, total BNPL loan amounts and BNPL payment status.

Why are changes needed to BNPL data?

One of the biggest challenges currently facing the credit industry is the under-reporting of BNPL information on consumer’s credit reports. Under-reporting has led to gaps in data for both traditional lenders and BNPL providers and a lack of a complete view of an individuals’ financial obligations, severely limiting the ability to assess risk.

Changes will see data from BNPL accounts being collated by Bureaux and used when calculating consumer credit scores and in credit reports. The data will be incorporated in a measured and proportionate way so it does not skew consumer scores.

The more information that can be provided to credit providers by the Bureaux, the more accurate the credit decision can be - offering a more responsible decision for consumers. To provide complete transparency, it’s essential for BNPL providers to share their data with all Bureaux. 

However, some Bureaux are offering different combinations of products to separate BNPL providers at different cost points, even where there is a similar spend footprint. This can have an impact on on-boarding costs for BNPL providers and can impact their ability to market fairly to consumers. It can also mean that the consumer is not always offered the best product, especially with some hybrid BNPL products.

Credit and procurement teams will need to negotiate contracts and carefully choose data providers when it comes to BNPL data.

What does this mean for credit risk and procurement teams?

Changes to the way BNPL data is shared and used means that credit risk and procurement teams are able to make more informed decisions and reduce risk. Having access to accurate affordability data helps to support the potential vulnerability of consumers.

Credit risk and procurement teams will need to be aware that the Bureaux may take advantage by inflating the charges for specific BNPL scores and associated data sets. As a result, procurement teams should be armed with reliable benchmarked pricing data.

How to choose the right data provider for BNPL

Having the information required to find the right data provider at the right price for BNPL will ensure credit risk and procurement teams are able to negotiate contracts that benefit both the organisation and the end consumer.

Here are a few top tips what to look for when choosing a data provider for BNPL:

●      Future proof - the Bureau chosen for BNPL data should be providing the right content and combination of BNPL data in the search to make sure it is future proof for upcoming changes to the regulations.

●      Work alongside the Bureau - credit risk and procurement teams should work alongside the Bureau to optimise the waterfall of search types for onboarding in order to reduce data costs and remain competitive in the industry. 

●      Benchmark pricing - benchmarking is key to securing data at the best cost and making sure costs are not inflated.

●      Find a Bureau that is easy to work with - Bureaus should be easy to work with and be able to demonstrate their value add and agility in terms of their technology.

What factors should be considered when agreeing contracts in relation to BNPL?

Current contracts are not fit for purpose if there is a risk of new search types impacting contracted minimums for existing search types or volumes increasing significantly due to high demand. We recommend renegotiating current contracts to allow for additional discounts for higher or amended volumes. This will help to avoid high pricing for additional data sets via a variation agreement which can carry additional risk as opposed to renegotiating a contract.

Risk and procurement teams should be looking for flexible usage across all products with no individual product minimum commitment. Unused searches should also be carried forward against minimum commitment in between years of the contract.