Visibility of buy now pay later could hit credit scores of a quarter of consumers, TransUnion warns

Millions of South Africans could see changes to their credit scores if buy now pay later (BNPL) transactions become visible in the country’s formal credit reporting system, says a report by credit bureau TransUnion.

BNPL services are still largely absent from formal credit reporting systems such as TransUnion and Experian. As many of these products do not charge interest or upfront fees, they have operated in a regulatory grey area and have not been fully governed.

Should the service become visible in the system, the Fintech Association of South Africa (Finasa) said it could affect how consumers are assessed when they apply for credit, even if they are paying their debt on time.

TransUnion said simulated analysis shows that 15%-25% of credit-active consumers could experience score movements if BNPL accounts were introduced into existing credit scoring models without being treated differently from other forms of credit.

The findings form part of TransUnion’s latest white paper examining the growing role of BNPL in South Africa’s credit ecosystem. BNPL allows consumers to split purchases into instalments, typically over a short period, and has become increasingly popular among younger consumers and those earlier in their credit journeys.

TransUnion said the issue is not whether BNPL should be visible in the credit system, but rather how that visibility is introduced and interpreted.

“The question is no longer whether BNPL should become more visible in the credit ecosystem. The question is how that visibility is introduced and whether the system is ready for its consequences,” it said.

Finasa said BNPL providers are co-operating with reporting to credit bureaus but support the regulator’s pause on full implementation because early analysis suggests it could unfairly lower many consumers’ credit scores.

The association emphasised that its members do not oppose regulation but want a careful, evidence-based approach to ensure reporting and any future regulatory framework are appropriate, do not harm consumers or the credit system and are developed collaboratively with stakeholders through ongoing engagement.

According to the report, the simulated score changes are not linked to worsening repayment behaviour. Instead, they are driven by how existing credit scoring models interpret additional information such as credit inquiries, account numbers, balances and utilisation levels.

Visibility without context can improve transparency, but may also lead to unintended distortion if not carefully interpreted.

—  TransUnion report

The report finds that many consumers could experience score reductions at the point they take out a BNPL facility, particularly those in midrange credit score categories that are often most important for lending decisions.

TransUnion said these movements reflect the way models react to new credit information rather than a change in a consumer’s actual creditworthiness.

“Critically, these observed score movements are not driven by deterioration in actual repayment behaviour. They are driven by the mechanics of the model: additional inquiries, more open products, outstanding balances and utilisation signals. In other words, the models are reacting to more visible credit activity, but that does not necessarily mean they are reflecting higher underlying risk.”

The report also finds that BNPL users are generally younger, concentrated in lower- to middle-income groups and are often new to formal credit. About 17% of BNPL users are classified as new-to-credit consumers, while nearly 20% are considered underserved despite having some credit history.

TransUnion’s analysis found no evidence that BNPL users are inherently riskier than other borrowers. In many cases, their arrears performance was comparable to, or better than, non-BNPL consumers across unsecured lending products.

The bureau said BNPL has become increasingly integrated into the broader credit market and is often acting as a gateway into formal credit rather than replacing traditional products. Consumers using BNPL were found to be more likely to open credit cards, retail credit accounts and personal loans in the months that followed.

The report cautions against treating BNPL as if it were the same as traditional revolving credit products such as credit cards. BNPL products are generally short term, transaction based and fixed in repayment structure.

TransUnion said further testing, analysis and industry collaboration is needed before any large-scale implementation of BNPL reporting in the credit ecosystem.

“Visibility without context can improve transparency, but may also lead to unintended distortion if not carefully interpreted.”

The company said the next phase should focus on deeper analysis, controlled testing and alignment among lenders, regulators, BNPL providers and credit bureaus to ensure any future reporting changes support fair consumer outcomes and better lending decisions.

Business Day