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Reporting BNPL data to credit agencies is flawed, says Zilch boss

Zilch credit
Image credit: T. Schneider via Shutterstock

The reporting of buy now pay later (BNPL) purchases to credit agencies, a suggested regulatory policy for the industry, may be a flawed concept according to the CEO of Zilch.

In an interview with UKTN, Zilch CEO Philip Belamant said that despite it being considered in the government’s upcoming BNPL regulatory framework, the reporting of BNPL purchases to credit agencies is not the best way to encourage consumer protection.

The UK has been working towards a regulatory system for the industry amid concerns that consumers are being put at financial risk by not understanding the terms of purchasing with BNPL.

The government outlined its BNPL regulatory proposal in June, although it is yet to legally implement it. The proposal includes reporting BNPL purchases to credit agencies, potentially affecting the credit rating of customers. In doing so, the use of BNPL will be treated in a similar fashion to more traditional loans.

The concept was applauded by BNPL giant Klarna, which implemented this policy on its own accord in May. The Swedish unicorn went so far as to encourage the government to move quicker in implementing these ideas.

“We urge the government to move quicker than planned to implement regulation which gives additional protections to consumers from both irresponsible, unregulated BNPL providers and traditional banks disguising high-interest products as BNPL,” said Klarna UK boss Alex Marsh in response to the government proposal.

‘It’s going to make customers look really hungry’

Despite its support from rival Klarna, Belamant said that credit agencies, at least for now, are not in a position to take on this information and use it to appropriately affect consumer credit.

“The way CRA’s [credit reporting agencies] work, they are not in a position, today to ingest data from fixed sum instalment products,” Belamant told UKTN.

“If you look at a credit score, it’s largely made up of two things. The first is, how many credit requests are you making on an ongoing basis? So how credit hungry you look. And the second thing is, how utilised are you?”

Belamant said that this system is designed for credit cards, but the same process does not necessarily translate to BNPL.

“If we take Zilch data and feed it into CRA, that’s going to be a major problem, because our customer only makes an application when they swipe our card, so they’re doing that every day, it’s going to make them look really hungry.”