Credit Ratings Could Cool Hot ‘Buy Now, Pay Later’ Market

A move by Equifax to enable buy now, pay later (BNPL) vendors to report their customers’ “pay-in-four” loans to the credit rating agency could dampen consumer enthusiasm for the popular payment method.

“Any added friction during checkout will impact the popularity of a payment option among consumers, and this is a pretty big one,” observed Donny Ouyang, CEO of Blackcart , a try-before-you-buy solutions provider in Toronto.

“Even if the credit angle is pitched as a benefit, it’s going to be tough to get over,” he told the E-Commerce Times. “Retailers selling products, especially moderately price products, will see a drop in conversion rates and sales.”

Rob Enderle, president and principal analyst at the Enderle Group , an advisory services firm in Bend, Ore. agreed that retailers could be hurt by Equifax’s decision. “It may make buy now, pay later less attractive because its inclusion will degrade credit ratings,” he told the E-Commerce Times. “So there may be an adverse impact on sales.

However, the impact of the Equifax move was downplayed by Rajiv Bhatia, an equity research analyst at Morningstar Research Services in Chicago.

For BNPL providers, it will be business as usual. “The reporting of this by the credit bureaus doesn’t change whether BNPL providers decide to do a soft or hard credit inquiry,” he told the E-Commerce Times, “and for consumers, the reporting of this could help their credit scores, if they make on-time payments.” Stepping Stone to Better Credit

Equifax also maintained that reporting buy now, pay later loans could benefit consumers.

As the first consumer reporting agency to formalize a process for including BNPL on traditional credit reports, Equifax sees this as an important step in expanding access to credit, it said in a posting on its website.An Equifax study of anonymized consumer data from a BNPL provider shows that […]

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