How the FCA's new BNPL regulations demand better bureau data for credit risk

The Financial Conduct Authority's (FCA) new regulations of Buy Now, Pay Later (BNPL) mark a significant shift in the industry. With nearly half of UK adults now using BNPL services, these rules introduce crucial requirements: mandatory affordability checks and clearer loan disclosures. While these measures protect consumers from mounting debt, they present both challenges and opportunities for lenders and providers.

The implications are clear: compliance now demands precise credit data. Lenders need detailed insights into consumer financial behaviour to meet regulatory requirements while managing risk. Transparent data reporting is no longer optional.

In this post, we'll cover the key takeaways from the new BNPL regulations. Plus, we’ll share insights from industry thought leader, Ashley Beldham, on what these changes mean for lenders.

Breaking down the FCA's new BNPL regulations

The new FCA regulations bring significant changes to how BNPL products are managed. A few key things stand out:

Mandatory affordability checks

BNPL providers must now conduct robust affordability assessments before extending credit. This move is designed to prevent consumers from taking on debt they can’t afford to repay. For lenders, this means deeper reliance on accurate credit data to gauge consumers' financial health and ensure compliance with the FCA’s expectations.

Improved transparency and clearer disclosures

Providers are required to deliver straightforward, transparent information about loan terms and the risks of missing payments. This shift aligns BNPL products with traditional credit offerings, ensuring consumers fully understand their commitments. For businesses, it signals a need for more granular data reporting that clearly reflects customers’ financial obligations.

Redress mechanisms

The regulations give consumers stronger protections if issues arise with BNPL purchases. This includes access to redress through Section 75 of the Consumer Credit Act and the Financial Ombudsman Service. These changes create a safer environment for consumers but also put pressure on BNPL providers to ensure their data is comprehensive and readily available in case of disputes.

"It's important to recognise that BNPL isn’t inherently risky. In fact, many consumers use it as a lower-cost alternative to credit cards, benefiting from its often lower or zero interest rates to manage costs more effectively. When used responsibly, BNPL can serve as a positive financial tool, offering flexibility without the high-interest charges commonly associated with credit card debt. For lenders and providers, understanding this perspective can support a more nuanced approach to risk, highlighting BNPL’s potential as a consumer-friendly product.” – says Ashley Beldham

The bottom line? As BNPL becomes more regulated, lenders and providers must take a proactive approach to managing data quality and pricing to not only comply with regulations but also maintain a competitive edge.

How bureau data quality affects lenders and BNPL providers

With the FCA's new regulations, the quality of credit data from Credit Reference Agencies (CRAs) has never mattered more. Under the FCA’s new regulations, lenders must perform thorough affordability checks before extending BNPL credit, meaning any discrepancies in data quality across different CRAs can significantly affect a lender’s ability to assess risk accurately.

The impact of data quality discrepancies 🔀

CRAs vary significantly in their data accuracy and completeness. For example, one CRA may report a consumer’s full range of credit obligations, including BNPL agreements, while another might only reflect traditional credit lines like loans or credit cards. This inconsistency leaves gaps in the information that lenders rely on to make informed decisions. A consumer with multiple BNPL debts that aren’t captured by certain CRAs may appear to be a lower-risk borrower than they really are, skewing the lender's risk models and leading to higher default rates.

The need for high-quality, real-time data ⏯

With BNPL usage continuing to rise, lenders need high-quality, real-time data to meet the FCA's affordability requirements. Data must be accurate, up-to-date, and comprehensive enough to reflect a consumer’s complete financial obligations. Real-time data allows lenders to see the most current credit usage, which is vital in a fast-moving market like BNPL where consumers can take on multiple debts in a short period.

For example, if a lender is evaluating a potential borrower who has just made several BNPL purchases across different platforms, having real-time data ensures the lender is aware of these new obligations before extending additional credit. The result? Potentially overextended borrowers and increased default risk.

Risks of incomplete or inaccurate data ❌

Poor quality data under the new FCA framework carries serious risks. Imagine a scenario where a consumer’s BNPL debts are not fully reported due to poor data quality. A lender, seeing only a portion of the consumer's credit obligations, may assess them as creditworthy and offer further loans. However, once the consumer’s true financial commitments are revealed, it becomes clear that they cannot manage the additional debt, leading to missed payments and eventual default.

Inaccurate data not only exposes lenders to financial risk but also puts consumers in a precarious position, as they may be given credit they cannot afford to repay. Under the new regulations, ensuring the integrity of bureau data will be essential for protecting both lenders and borrowers.

Key takeaway: For BNPL providers, ensuring that their data is accurately and consistently reported to all CRAs is key to building trust with lenders. Those who can guarantee high-quality data will be better positioned to form stronger partnerships with lenders, while those who fall short risk being sidelined as the market adjusts to stricter regulatory oversight.

3 best practices for BNPL regulation compliance

1. Review data contracts regularly 💡

The quality and pricing of bureau data can vary significantly, and the landscape is constantly evolving. To ensure they are receiving the best possible data for their needs, lenders should conduct regular reviews of their data contracts with credit reference agencies (CRAs). This process allows lenders to renegotiate terms, especially in light of changing regulatory requirements, ensuring they aren’t locked into outdated agreements that no longer serve their best interests.

"We often see lenders locked into outdated agreements that no longer serve their needs," notes Ashley Beldham. "With BNPL usage rising and regulations tightening, you need contracts that can flex with your changing data requirements."

By conducting regular reviews, lenders can:

• Renegotiate terms to reflect new regulatory requirements

• Secure better pricing for their data needs

• Access more comprehensive datasets as BNPL usage grows

• Ensure their risk assessments remain accurate and compliant

2. Use multiple data sources 💡

This is particularly risky in the BNPL space, where significant reporting gaps exist between different CRAs. Our research shows that some BNPL products go completely unreported by certain agencies.

"Single-source data is increasingly becoming a liability," explains Ashley Beldham. "We're seeing more lenders move towards multiple data sources to build a complete picture of consumer obligations."

Using multiple CRAs offers several benefits::

• Cross-referencing capabilities to spot potential risks

• Better compliance with FCA affordability requirements

• More flexible decision-making options

• Access to the most up-to-date consumer data

3. Strengthen data management 💡

Recent data shows the BNPL market continuing to grow, and with stricter regulations coming, lenders need to step up their data practices. This includes integrating real-time data feeds into their decision-making processes to ensure that they have the most current insights into consumer behaviour. 

"Real-time data feeds are becoming crucial," says Ashley Beldham. "We're seeing cases where consumers take on multiple BNPL commitments within hours. Without current data, lenders are essentially making decisions blindfolded."

Strong data management now requires:

• Integration of real-time data feeds for immediate insights

• Robust systems to track and verify CRA information

• Regular analysis of data accuracy and completeness

• Consistent monitoring of data quality across sources