Experian’s first-year regulatory analysis has revealed that buy now, pay later is becoming a more nuanced credit signal.
New Experian A/NZ analysis has found buy now, pay later (BNPL) inquiries are often made by Australians entering or returning to the credit market, while credit-active consumers using the products are more likely to have recorded prior stress indicators than comparable credit card or personal loan inquirers.
The findings form part of Experian’s July Business Pulse Monthly Spotlight, which examined recorded consumer credit inquiries and tracked cohorts for six months after an initial BNPL, credit card, or personal loan inquiry.
Experian found that 35 per cent of BNPL inquiries came from consumers with no recent credit activity.
That was more than double the equivalent share for personal loan inquiries at 17 per cent and credit card inquiries at 13 per cent.
The credit bureau said the data indicated BNPL could have different roles depending on a consumer’s existing relationship with credit and their subsequent behaviour.
“The results suggest BNPL can appear at a point of entry or re-entry into the credit market, while for established borrowers it may operate alongside other credit options,” Experian said.
Different paths after an inquiry
Among consumers without recent credit activity, those whose first observed inquiry was for BNPL were less likely to seek further credit in the following six months than people whose first inquiry was for a credit card or personal loan.
Experian found that 29 per cent of credit-inactive consumers in the BNPL cohort made a subsequent credit inquiry within six months.
By comparison, 35 per cent of consumers who began with a credit card inquiry and 35 per cent whose first inquiry was for a personal loan made another credit inquiry over the same period.
A similar pattern emerged in additional account openings, with just 4 per cent of credit-inactive consumers whose first recorded inquiry was for BNPL opening a new credit account within six months, compared with 8 per cent in both the credit card and personal loan cohorts.
Stress indicators stand out
Experian’s analysis also identified a higher prevalence of adverse-credit history among credit-active BNPL inquirers.
A total of 20 per cent of BNPL inquiries among credit-active consumers involved people with a previous delinquency or adverse credit event.
The comparable proportions were 13 per cent for credit card inquiries and 14 per cent for personal loan inquiries.
Louis Tsang, Experian’s head of analytics consulting and insights, said the regulatory framework had improved visibility of how BNPL fits within Australia’s consumer credit system.
“The first year of BNPL regulation has provided greater visibility into how consumers use these products and where they fit within the broader credit journey. What we’re seeing is that BNPL inquiries are appearing as part of the credit journeys observed in this analysis, including among consumers entering or re-entering the credit market,” he said.
“For lenders, considering BNPL inquiries alongside other forms of credit may contribute to a broader view of observed borrowing behaviour and may help inform lending decisions.”
[Related: ASIC sets out fresh BNPL guidance ahead of incoming laws]
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