CHICAGO–a new study from TransUnion offers some new insights into the risk profiles of consumers who use buy now, pay later (BNPL) point-of-sale financing, including insights that may offer guidance to credit union decision-makers.
The study found that in comparison to the general credit population, BNPL/POS consumers tend to be younger and belong to below prime risk tiers, and 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,” examined the behaviors and demographics of more than nine-million consumers with a point-of-sale financing inquiry from Q4 2019 to Q4 2021.
TransUnion, noting BNPL and POS financing have emerged as an extremely popular offering among consumers in recent years, said a recent study it conducted found seven in 10 consumers (71%) said they have heard of BNPL, and 38% said they had used such services in the last year.
According to TransUnion, 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.
Higher Risk Tiers
Additionally, TransUnion said it found 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, TransUnion reported.
Moreover, 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, the survey found.
Promoting Financial Inclusion
Saying it is seeking 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 Point-of-Sale suite of solutionsearlier this year.
:The solution allows 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,” TransUnion said.
“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,” said Liz Pagel, senior vice president.