The rapid proliferation of ‘buy now, pay later’ (BNPL) services is transforming the landscape of consumer banking, fundamentally altering how consumers finance purchases. Traditionally, BNPL has faced criticism for fostering financial irresponsibility and encouraging overspending. However, recent research suggests that these services might benefit both consumers and lenders by enhancing credit market efficiency. Analysis of data from over one million unsecured loan applications at a Nordic bank providing both BNPL services and traditional consumer loans has revealed that BNPL transaction data—particularly private data—provides consequential insights for conventional credit market operations. This novel method of leveraging BNPL data deserves a deeper look to understand its transformative implications on access to credit and overall financial behavior.
Transformative Role of BNPL
BNPL services act as a potential bridge facilitating access to traditional bank credit. Researchers have utilized proprietary data featuring BNPL transaction and repayment histories, alongside records of bank loan applications, approvals, terms, and repayment behavior. This granular data enables a deep dive into the interplay between BNPL usage and mainstream credit markets. The detailed analysis of transactional and repayment data helps to reveal borrower behavior patterns that are valuable for making informed lending decisions. This has revolutionized how traditional banks view credit risk and has begun to integrate BNPL data into their risk assessment frameworks.
One significant finding is that customers with a BNPL history exhibit a substantially higher likelihood of securing regular bank loans. Specifically, those with a robust BNPL repayment track record experience an increase of nearly 30 percentage points in loan approval rates compared to individuals without BNPL experience. This correlation indicates that positive BNPL transaction and repayment histories serve as critical indicators of reliable financial behavior. This effect holds true even when comparing individuals with comparable external credit scores, implying that private BNPL data constitutes a critical risk assessment tool for banks. The integration of these insights into mainstream banking marks a significant shift towards data-driven credit assessments, unlocking new possibilities for consumers and lenders alike.
Enhanced Credit Approval
The benefits of BNPL data are not uniformly distributed. Customers with a history of late BNPL payments are less likely to obtain traditional loans, showcasing how BNPL records serve as an additional screening mechanism. This aligns with previous research underscoring the utility of alternative credit data in financial decision-making. The inclusion of BNPL repayment histories helps lenders more accurately gauge financial reliability, thereby fine-tuning their risk models and making more informed decisions. Ultimately, this nuanced risk assessment approach enables lenders to effectively distinguish between lower- and higher-risk applicants, fostering a fairer lending process.
The Nordic bank in focus distinguishes between ‘internal’ customers (those with recent, frequent BNPL transactions) and ‘external’ customers (those with older or fewer transactions). This segmentation provides a valuable comparison, underscoring the distinctive impact of private BNPL data. Internal BNPL customers typically experience better credit outcomes and enhanced approval rates compared to their external counterparts. This segmentation not only facilitates personalized lending strategies but also illustrates the potential of BNPL data in improving credit market efficiency and expanding accessibility to loans for responsible users. The systematic segregation of BNPL customers reinforces the importance of continuous engagement with BNPL platforms and positions them as valuable players in the credit market ecosystem.
Internal vs. External BNPL Customers
Internal BNPL customers applying for bank loans have an internal credit score around eight to ten points lower than comparable external applicants. This disparity highlights the role of private BNPL data in refining credit risk assessments. Consequently, internal customers enjoy a loan acceptance rate of 78.3%, compared to 61.7% for external customers and just 29.6% for those without any BNPL history. The discernible advantage for internal BNPL customers underscores the efficacy of leveraging detailed BNPL data for risk management and loan decision-making. It emphasizes that frequent, recent BNPL transactions yield richer data, thereby offering more reliable insights into financial behavior and enhancing lending outcomes.
Beyond credit access, BNPL data also influence loan pricing. BNPL users with a positive repayment history garner an average interest rate rebate of 1.4 percentage points, approximately 15% below the market rate for their external credit profile. This advantageous pricing reflects the lender’s confidence in the borrower’s reliability, informed by detailed BNPL repayment records. It also highlights how a strong BNPL history can lead to substantial financial benefits for borrowers, translating to significant interest savings over the loan term. By incorporating BNPL data into traditional loan pricing models, lenders can achieve a balanced approach that rewards low-risk borrowers while maintaining profitability.
Influence on Loan Pricing
Lenders employ an asymmetric pricing strategy based on BNPL data, classifying customers into ‘revealed low risk’ and ‘revealed high risk’ categories. Revealed low-risk customers, who appear risky based on external scores but possess a strong BNPL history, receive lower interest rates than would be suggested by their external profiles. This nuanced approach allows lenders to offer competitive rates to borrowers who demonstrate reliable repayment behavior through their BNPL history, even if their external scores suggest otherwise. The effectiveness of this strategy underscores the value of integrating diverse data sources to refine credit risk assessments and optimize loan pricing.
Conversely, revealed high-risk customers—those with strong external scores but poor BNPL records—are charged higher rates than their internal profiles imply. This strategy allows lenders to exploit information asymmetries and precisely tailor their offerings. By adjusting interest rates based on both external scores and BNPL histories, lenders can mitigate potential risks while still making informed, data-driven lending decisions. This comprehensive approach facilitates a more accurate evaluation of creditworthiness and ensures that each borrower receives a rate reflective of their true financial behavior.
Learning Effect and Improved Repayment Behavior
An intriguing result of the study is the evidence of a learning effect among BNPL users, who demonstrate better repayment behavior and lower default rates on traditional loans. Internal BNPL customers are 10 to 12 percentage points less likely to experience a 30-day payment delay on bank loans compared to external customers. This indicates that managing BNPL payments contributes to developing financial discipline, independent of preferential interest rates. The consistent, structured repayment experience provided by BNPL schemes appears to instill responsible financial habits, which subsequently translate to better performance on traditional loan obligations.
This hands-on experience with BNPL seems to foster improved financial habits. Lenders notice that sustained engagement with BNPL services correlates with enhanced financial management skills among consumers, as evidenced by their stronger repayment behaviors and lower delinquency rates. This suggests that BNPL platforms can serve as valuable educational tools, promoting financial literacy and responsibility. These benefits not only support borrowers in managing their finances more effectively but also contribute to a more stable and reliable borrower pool for lenders. The potential of BNPL as a catalyst for positive financial behavior highlights its broader role beyond facilitating retail purchases.
Policy Implications and Strategic Advantages
BNPL services serve as a potential bridge to traditional bank credit. Researchers have used proprietary data, examining BNPL transaction records, repayment histories, and bank loan data, to investigate the relationship between BNPL use and mainstream credit. This detailed data analysis reveals borrower patterns essential for making well-informed lending decisions. This has changed the way traditional banks assess credit risk, leading to the integration of BNPL data into their evaluation frameworks.
A key discovery is that customers with a BNPL history are significantly more likely to secure conventional bank loans. In fact, individuals with strong BNPL repayment records see nearly a 30-percentage-point increase in loan approval rates compared to those without BNPL experience. This correlation suggests that positive BNPL transaction histories are strong indicators of trustworthy financial behavior, even when comparing people with similar external credit scores. The adoption of BNPL insights in mainstream banking signifies a major shift toward data-driven credit assessments, offering new opportunities for both consumers and lenders.