Buy now, pay later: Your debt is no longer private

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JIMMY MOYAHA: The National Credit Regulator has updated its reporting codes that relate to information sharing. This has some serious implications for service providers like those that offer Buy Now Pay Later [BNPL] facilities, because the new reporting standards could mean that your borrowings are reported as part of your credit score assessments.

We’re going to be taking a look at this in more detail with the chief executive officer of the Credit Association of South Africa, Leonie van Pletzen. She joins me on the line now to see what we make of this.

Leonie, lovely having you on the show. Thanks so much for taking the time. Let’s start with an overview of what prompted the National Credit Regulator [National Credit Regulator] to make these adjustments.

LEONIE VAN PLETZEN: I think with the growth of the BNPL products in South Africa – we’ve seen significant growth – traditional credit providers need visibility of those repayment obligations.

That is why the Credit Association of SA advocated for the data to be uploaded on the credit bureau so that the credit provider has visibility of a consumer’s expenses.

JIMMY MOYAHA: Leonie, how do these new adjustments have the potential to impact consumers who make use of these Buy Now Pay Later facilities? What has been the norm up to this point, and what would the new adjustments mean?

LEONIE VAN PLETZEN: Usually, when a consumer enters into a BNPL agreement, there has been no visibility on any form of credit bureau so that other traditional credit providers could have visibility of this.

What’s happening now is the National Credit Regulator is saying because this industry is so big, they require reporting to take place.

So now, when a consumer enters into a BNPL agreement, that data should be visible to other credit providers as well so that they can assess the affordability of the consumer to make sure that that consumer can pay all of their debt obligations.

Usually it wouldn’t have an impact on your credit bureau reporting, but now there will be a visible account site that will tell other credit providers how many BNPL products you have, and if you are up to date with your payments.

JIMMY MOYAHA: Leonie, this certainly has the potential for implications on how lenders view you as a prospective borrower in the future. From a lending perspective, what is the practice around the information sharing that would benefit Buy Now Pay Later service providers to adhere to these adjustments?

LEONIE VAN PLETZEN: This will definitely have an impact on credit providers because we will now see if a client is already over-indebted, or if the client can actually afford to repay all the repayments.

So this is an additional bureau submission that a credit provider has to take into account when determining their expenses.

This is important for consumers because consumers must now make sure that they make these repayments on time so that it doesn’t affect their payment score negatively.

We are very happy that this is taking place so that we can have a full picture of the consumer’s total obligations.

JIMMY MOYAHA: Leonie, what does this then mean for the credit scores overall? You touched on the fact that it affects payment behaviour and how that prospective service provider might view those behaviours. Does it have a material impact on the actual credit score of consumers?

LEONIE VAN PLETZEN: All of the credit providers have different credit scores and mechanisms that they use.

This will merely increase your expenses only if you have a couple of BNPL products.

So if you are stacking the products – making use of three or four different BNPL providers – credit providers will now be able to see this and determine if you can actually afford formal credit.

BNPL at this stage is not regulated, so [providers] don’t do an affordability assessment. However, normal credit providers registered with the NCR have to do an affordability calculation. So this will be taken into consideration when they are doing their affordability calculations.

JIMMY MOYAHA: Leonie, in your opinion, is this the next step towards getting Buy Now Pay Later service providers to be more formally regulated? We do know that from a credit perspective, as you rightly mentioned, this does have an impact on formal credit even if this might be considered informal credit at this stage.

LEONIE VAN PLETZEN: Yes, I think this is definitely the next step for them to become more regulated.

We would advocate not for over-regulation, but at least for a National Credit Act affordability assessment to take place, so that when we do our affordability, they do the affordability in the same way to make sure that the consumer is not over-indebted because we don’t want the consumer to make use of different BNPL products and then actually go out and seek formal credit in order to pay those products.

So it’s a step in the right direction.

I don’t think reporting is the only mechanism that will solve this problem, but I think the next regulations are on their way.

JIMMY MOYAHA: Moving in the right direction towards ensuring that South Africans don’t find themselves over-indebted.

This is the next step from the National Credit Regulator’s perspective – having Buy Now Pay Later service providers report on the activities of their consumers so that all other service providers are also able to share in that information.

We’ll leave the conversation on that note. The chief executive officer of the Credit Association of South Africa, Leonie van Pletzen, joined us to look at how making use of Buy Now Pay Later services could impact your credit score.

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