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Research reveals consumers’ increased appetite for alternative lending

Buy Now Pay Later (BNPL) facilities have high awareness among consumers, with 74% of Millennials (born 1980–1994) and 78% of Gen Xers (born 1965–1979) saying they’ve heard of BNPL services. Nearly half (45%) of all respondents also reported they have used BNPL services in the past 12 months.

TransUnion’s Q3 2021 Philippine Consumer Pulse study has uncovered that consumer awareness and appetite for alternative lending methods is broadening. Specifically, Buy Now Pay Later (BNPL) facilities have high awareness among consumers, with 74% of Millennials (born 1980–1994) and 78% of Gen Xers (born 1965–1979) saying they’ve heard of BNPL services. Nearly half (45%) of all respondents also reported they have used BNPL services in the past 12 months.

Filipinos’ perceived access to credit—or lack thereof—may also have something to do with the high awareness and use of BNPL services. Over half (55%) of respondents in TransUnion’s latest Consumer Pulse study believed access to credit is important to achieve their financial goals, but only just over a third (36% – an increase of three percentage points from Q2 2021) said they have sufficient access to credit and lending products. Despite this, nearly half (46%) of respondents said they plan to apply for new or refinance existing credit in the next year.

Financial institutions extending BNPL as an alternative form of lending should pay particular attention to Millennials and Gen Z (born 1995–2003). The survey revealed that among those who have used BNPL services in the past 12 months, they are the generations most curious with 40% and 38%, respectively, saying they used BNPL because they “just wanted to try it”. Meanwhile, Gen X was the generation most likely to make larger purchases with the service at 34%. Baby Boomers (born 1944–1964) was the generation who most said they used BNPL in order to spread payments over time (60%). More than 30% of each generation surveyed said they used Buy Now Pay Later services because it was easy to apply for it.

“The growing popularity of Buy Now Pay Later coincides with the convenience, availability, and smooth transactions that consumers have come to expect from digital services. Lenders looking to implement campaigns in this evolving and growing area must be able to establish an underwriting system that can identify good customers in order to sustain that reasonable balance between risk and opportunity, and great customer experiences,” said Pia Arellano, TransUnion Philippines president and CEO.  

Bills and loans consumers are unable to pay

In the latest round of the TransUnion Consumer Pulse study, the percentage of Filipino consumers reporting their household income was currently decreased reached 64% in Q3 2021. While many hoped a faster COVID-19 vaccine rollout would drive economic recovery, the majority (54%) of consumers believed their household income will be negatively impacted by the pandemic in the future.

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About half of all surveyed consumers (48%) were concerned about paying their bills or loans in full. The top bills and loans consumers said they won’t be able to pay among those with these bills/loans were auto lease (36%), personal loan (35%), and auto loan (35%). Meanwhile, 21% of consumers said they received a financial accommodation, such as a deferral, forbearance, payment holiday or eviction prevention in the past year. Mortgage (20%), private student loan (19%), auto loan (16%), and personal loan (16%) were the top bills and loans enrolled in financial accommodation in the past year among consumers with that bill/loan.

In order to pay current bills or loans, 47% said they’ll use money from savings and 40% will borrow money from friends/family, while 41% said they’ll pay a partial amount. Over one in 20 consumers (6%) reported they don’t know how they’re going to pay.

“With BNPL gaining traction, we are seeing a growing opportunity for financial services providers and even marketers to support consumers during this difficult time. In more mature global credit markets, retailers have even been extending BNPL to products or services beyond the usual consumer goods, such as vet care. There is a huge growth potential for BNPL, and TransUnion is focused on helping lenders accommodate evolving consumer needs by helping inform risk decisions so that the economic viability of BNPL lending can be sustained. Lenders that use advanced information and insights and digital onboarding technology can grow market share, while also safeguarding themselves and consumers from fraud. Done right, consumer lending has the ability to stimulate economic activity and benefit the nation as a whole,” said Arellano.

Fighting fraud schemes targeting consumers

TransUnion has constantly warned about the prevalence of fraud in the digital space. Fraudsters didn’t fail to notice the exponential increase in online transactions in the past year and have been trying to capitalize on trends as they emerge.

In the latest Consumer Pulse study, almost half (48%) of Philippine respondents said they have been targeted by a digital fraud attempt in the last three months. Among those targeted, phishing (44%) and third-party seller scams on legitimate online retail websites (43%) were the two most common tactics employed by fraudsters online.

“Technology has afforded us with solutions that cater to the ever-evolving market needs and consumer demands. Many BNPL companies now utilize real-time decisioning, but all financial institutions must keep in mind that their risk management strategies should always include multi-layered defenses against fraud while maintaining friction-right customer experiences. At TransUnion, we’ve found that harnessing device intelligence, in addition to our own bureau data and alternative data from our partners, expose fraud and fraud linkages that can’t be detected by simple face or ID scans alone. We are committed to continuously innovating to provide our members with the tools they need to grow their business and protect them and the consumers they serve from fraud,” said Arellano.

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