The rapid expansion of “Buy Now, Pay Later” (BNPL) services has transformed how consumers pay for goods online. While often associated with potential debt accumulation, new research indicates that responsible use of these payment methods can serve as a stepping stone to more affordable traditional banking products. A recent study highlights how banks utilize internal payment data to assess borrower risk more accurately, potentially leading to lower interest rates and higher approval chances for specific customer groups.
Researchers Kasper Roszbach, Christine Laudenbach, Elin Molin, and Talina Sondershaus have analyzed the intersection between point-of-sale financing and the broader market for unsecured lending. Their findings suggest that payment history from small, short-term credits provides lenders with valuable insights. This data allows financial institutions to identify reliable borrowers who might otherwise be classified as high-risk based solely on traditional credit scores.
BNPL as a Gateway to Traditional Banking
BNPL loans are typically small, short-term credits with a duration of up to 90 days. They are often interest-free for the consumer if paid on time, with costs covered by the merchant. However, missed payments result in fees. The study utilized a dataset comprising over one million unsecured loan applications from a Nordic bank that offers both BNPL services and standard consumer loans.
This unique dataset allowed researchers to track individuals who used BNPL services and subsequently applied for a consumer loan norway. Unlike public credit registers, which may delete transaction history once a debt is settled, the bank’s internal records provided a comprehensive view of repayment behavior. The analysis revealed that customers with a positive track record of repaying BNPL obligations were significantly more likely to be approved for larger loans.
Impact on Approval Rates
The correlation between BNPL behavior and loan approval is substantial. The study found that applicants with a solid history of repaying BNPL credits had a 30 percentage point higher probability of loan acceptance compared to those without such history. This effect persisted even when comparing individuals with similar external credit scores.
Conversely, the data acts as a filter for potential risk. Customers who frequently missed BNPL payments faced a lower probability of obtaining traditional credit. This suggests that banks actively employ their proprietary data to refine credit decisions, using payment history as a supplementary screening tool beyond standard credit checks.
Interest Rate Reductions for Proven Borrowers
Beyond access to credit, the study highlights a direct financial benefit for disciplined payers. Borrowers with a strong history of managing BNPL payments received better terms on subsequent loans. On average, these customers secured interest rates that were 1.4 percentage points lower than comparable applicants lacking this specific repayment history. This equates to a discount of approximately 15 percent relative to the market rate they would otherwise be offered based on their external risk profile.
This pricing strategy indicates that lenders use internal data to offer competitive advantages to low-risk clients. By identifying customers who demonstrate financial reliability through small transactions, banks can offer cheaper loans in norway while maintaining profitability.
Pricing Based on Hidden Risk Profiles
The research identified a sophisticated pricing pattern described as “asymmetric.” The bank categorized customers based on a combination of external credit scores and internal BNPL data.
- Proven Low Risk: Customers who might appear risky based on external scores but have flawless BNPL histories. These individuals pay lower interest rates than their external score would suggest.
- Proven High Risk: Customers with strong external credit scores who have failed to meet BNPL obligations. These individuals face higher interest rates than their credit score would typically command.
This approach allows the lender to “price discriminate” effectively. They can attract reliable customers who might be overcharged by other banks lacking this specific data, while simultaneously avoiding underpricing loans for customers who look good on paper but struggle with actual repayment.
Reducing Defaults and Financial Discipline
The use of internal transaction data appears to improve the overall health of the bank’s loan portfolio. The study observed that the enhanced credit assessments led to a tangible reduction in default rates. Borrowers with a positive BNPL history demonstrated better repayment behavior on traditional bank loans compared to similar customers without that history.
Specifically, “internal” BNPL customers were 10 to 12 percentage points less likely to experience a 30-day payment delay on their bank loans. Interestingly, this improved behavior was observed even among borrowers who did not receive lower interest rates. This suggests that the experience of managing BNPL payments may contribute to better financial discipline. The regular repayment of small amounts helps consumers build a “financial reputation” that signals reliability.
The Debate Over Data Sharing
The findings of this study contribute to the ongoing debate regarding financial regulation and data privacy. In many jurisdictions, including parts of the Nordics, detailed BNPL data is not always permanently visible in national debt registers. For example, in some systems, information is deleted immediately after the debt is repaid.
This lack of public data creates an information advantage for banks that offer both payment solutions and credit cards norway or loans. They possess private knowledge about a customer’s reliability that competing banks do not have.
The researchers note that while including BNPL data in national registers could improve market transparency, it might also have unintended consequences. If all banks have access to the same data, the incentive for individual institutions to gather and analyze proprietary information may decrease. This could potentially reduce the specific benefits currently enjoyed by consumers who build a relationship with a single financial institution through responsible payment behavior.
