Buy Now Pay Later Redefines Creditworthiness
For the roughly 54% of Americans who have prime or super-prime credit, according to data from the US Consumer Financial Protection Bureau, underwriting access is rarely an issue. The biggest difficulty that holders of prime credit scores face when looking for credit is choosing which of the low and high rate cash back offers thrown in front of them to accept. But for those with subprime scores (18 percent), a light credit history (11 percent), or no record (11 percent), having access to underwriting can be a difficult and expensive proposition, if at all possible. at all – often leaving such consumers. with a cash flow crisis created by the increase in unforeseen expenses, without access to conventional credit channels to mitigate them.
And while it is undeniably important for underwriters to properly assess risk, the FICO scoring model may not be the best tool for this purpose, Sezzle chief technology officer Killian Brackey PYMNTS told PYMNTS in a recent conversation because it can lock out potentially good customers while trying to weed out bad ones.
“We find that the FICO credit vision scores don’t really capture the full picture of creditworthiness for the product in the shorter term, smaller maturity,” he said. “There can be a number of reasons a client has a lower score today – they might start paying off their student loans or they might not get credit for things like pay his phone bills or other made. We take an approach where customers are low risk and responsible and… we see paying interest free is a smarter way to buy and budget responsibly. “
Consumers are wary of interest
High interest rates and fees, he said, present such a steep learning curve for new users of the credit world that they can, in some cases, come close to the predator. Sezzle’s approach is a FICO-free subscription path for consumers in early-use applications, he said. Because Sezzle is constantly updating its credit model, it can identify customers who have good repayment risk for the types of short-term credit products it offers. The company doesn’t use the FICO rating to determine creditworthiness, he said, but it samples the buyer to model their position in that FICO rating range.
What they tend to see, he said, is better consumer insight.
“We rely on extensive testing and rapid testing of our underwriting models and models and fraud models that go beyond this FICO score and provide a more meaningful, complementary and comprehensive view of the customer and their creditworthiness identity.” , he said, “and then putting those 50+ data sources into a number of these models to really help get a better picture of identity and creditworthiness with where the customer actually is. in his journey today. “
First to be consumers
But the goal, he said, is bigger, because Sezzle’s mission isn’t just to help consumers who are considered subprime – the consumers Sezzle qualifies internally as best for them. the future – to obtain better access to credit. It’s something the company does, but it also believes that part of its mission is to help consumers have real choice in financial products in the future.
Even if this choice will in some cases move them away from the Sezzle platform. In many ways, Sezzle and his “buy now, pay later” (BNPL) offer are “training wheels for traditional credit products,” he said. By getting consumers into the habit of paying for their purchases every two weeks, and with overspend guarantees automatically built in, he said, the platform as a whole is designed to help the buyer. and develop.
“We review them at least once a month for each buyer, and we put people on a graduated path. So they will often start with something like [a couple hundred dollar] limit and be able to gradually grow up [a few thousand dollar] limit within our platform, ”he said. “So many customers without credit find it very difficult to get a credit card or spending limit that really allows them to gain trust, spend responsibly, and safely.”
Because, Brackey said, the crux of the matter for credit skeptics who cut broadband around the general segment, often to their own detriment, is trust. There is a large cohort of credit skeptics who are a little more hesitant about these traditional products. While consumers seek transparency and interest in fees, and typically don’t find it in the traditional credit segment, he said, they are turning to BNPL models because those models are, among other things, , very transparent.
From credit skeptics to credit creators
“We hope we can help people become credit builders through Sezzle, which is our financial education platform, designed to help point people in that direction,” he said. “We’re not necessarily going to push or force this because people have different reasons for using different products. We believe that the most important way to achieve this is to continue to build trust on our side. Recent research shows that consumers strongly want education to be part of their relationship with financial tools. With that in mind, Sezzle launched Sezzle Up last year to help users improve their financial literacy and boost their credit scores.
Financial services are about trust, he said, and consumers who remain skeptical about credit have simply learned not to trust it as a tool that can be good for their financial lives. Sezzle thinks it’s okay to be skeptical about credit as long as it’s the customer’s choice, not a reality dictated by underwriting rules as they exist today.
What Sezzle intends to prove, he said, is that underwriting rules can be rewritten to create a system that is much more inclusive, without being much riskier, and which offers adequate levels of choice for all parties. concerned.