The news: Affirm will extend more buy now, pay later (BNPL) loans to consumers that it previously might have denied after updating its real-time underwriting model, per a press release.

Affirm’s transformer-based model now pulls from contextual events in consumer purchase histories—like purchase order and timing—to judge eligibility for installments.

This change lets more consumers with limited credit histories and no FICO scores qualify for purchases.

How we got here: Fintechs are trying to snag more purchase volume from consumers who have been overlooked by incumbents.

• Cash App debuted its own proprietary credit scoring system that relies in part on Cash App transactions, which it uses to power Cash App Borrow.
• And Klarna evaluates potential customers based on a transaction-level underwriting system, instead of a minimum credit score.

Why this matters: Buy now, pay later (BNPL) players want more everyday spending from consumers. Context-based underwriting models can widen the pool of possible borrowers BNPL players can serve as overall growth in the industry slows: by 2029, payment value will slip into single-digit growth at 9.3%, per our forecast.

Implications for BNPL providers: As BNPL players target more credit-thin consumers, they need to address the data their models can’t see—users who are overburdened with multiple sources of loans.

• 63% of BNPL users say they’ve had multiple BNPL loans at the same time, per a Lending Tree survey.
• Younger consumers are even more likely to be overleveraged: 29% of Gen Zers and 28% of millennials have held three or more loans simultaneously.

Multiple installment repayment schedules increases the potential for missed payments: Nearly 60% of BNPL users using installment for monthly expenses or essentials at least sometimes struggle to remember their upcoming loan repayment schedules, per PYMNTS.

BNPL players need to implement loan reminders and management programs for users to prevent missed payments and confusion. 

• Clear repayment calendar visuals in BNPL apps can help users see their installment loan obligations.
• Proactive alerts like push notifications can help installment users remember upcoming deadlines for payment.

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