Trust is at the core of Qlarifi’s mission, and it is the foundation of sound credit reporting. Credit reporting is at its core an exchange of information, and for it to work, all participants in a market have to trust that the information is accurate. On top of this, consumers want to know that their personal information is handled securely and responsibly.

When it works, credit reporting improves economic activity in any lending market. Put simply, insight into consumers’ repayment behaviour reduces the risk taken by lenders, and increases the likelihood they will extend credit. It also incentivises consumers to repay their loans, as they understand that repayment behaviour - good or bad - will be reflected in their ability to access credit in the future.

This is an idealistic vision - the reality is pretty different, and trust in the credit reporting system is at an all time low.

In the BNPL context, there has been plenty of hand-wringing about the right approach to credit reporting. Consumer Reports’ BNPL Policy White Paper highlights the inconsistency of reporting today, with varying approaches on method of reporting, type of information reported, and which consumer reporting agency receives the information (if any). The White Paper notes that this poses a risk to consumers’ credit scores, as well as making it impossible for BNPLs to see whether a consumer has concurrent BNPL loans with other providers.

There are many reasons for the inconsistency of reporting of BNPL transaction data, but it is clear that the trust is missing.

Why is there a lack of trust in the credit reporting ecosystem?

At its core, the problem is incompatibility. The legacy reporting formats used by large CRAs (developed for traditional forms of lending such as credit cards, personal loans, and mortgages) are not compatible with new and innovative fintech products. Add to that the haphazard approaches taken by market participants, and reporting loses its usefulness because trust in the efficacy of the system is completely eroded.

Given this background, it is understandable that BNPL providers are reluctant to share their transaction data with the large CRAs (see Klarna’s blog post on this point). While visibility of a customer’s total exposure is desirable for all participants in the industry, there is a real concern that sharing that data will damage consumers’ credit scores and financial wellbeing.

What is the solution?

If BNPL transaction data is to be incorporated into the rest of the credit reporting ecosystem, it must be done in a way that does not punish responsible BNPL users. In fact, it should reward responsible users and provide a real credit building pathway.

Complex technological hurdles require a clear-eyed focus on developing a reporting platform to support BNPL products and users. This includes a consideration of how this transaction data should be integrated into the overall credit mix of a consumer. At a minimum, a trustworthy BNPL reporting system must: