Credit risk

Credit risk

Tobias Baer shares an article on credit risk and the perils of the buy-now-pay-later trend.

A just-published TransUnion study shows that buy-now-pay-later (BNPL) takes the UK (just as other markets) by storm, with 35% of the population having used it in the past 12 months (driven in particular by Gen Z and Millennials with up to 60% usage). There are both obvious and not-so-obvious implications for traditional lenders.

BNPL promotes further fragmentation of consumer debt – and therefore will make it even harder for less disciplined consumers to keep a grip on their financial obligations. 50 years ago consumers could easily understand their financial capacity by checking the amount of cash in their wallet – that was all available to spend. The credit card has greatly increased both financial flexibility and the haze through which consumers see their financial capacity – but many cards give consumers at least some orientation by indicating the credit line and the available “open to buy” portion. By contracting loans one merchant transaction at a time, a consumer needs to be a real accounting wizard to know at every point of time how much money she owes or still can afford to spend.

For traditional lenders, this means that the large portion of borrowers with relatively low “conscientiousness” (i.e., limited financial planning and self-control) is becoming even riskier as the risk of excessive borrowing has become even greater. This is not only because BNPL fragments the financial affairs of consumers but also because BNPL is offered through retailers who want to use credit to maximize sales – in a sense, retailers suffer from insufficient conscientiousness themselves when they prioritize short-term sales maximization over long-term trouble for their customers (as customers going through personal bankruptcy barely make an attractive consumer). In addition, many retailers (rationally) subsidize borrowing cost by sacrificing a part of their margin, essentially to bear credit losses. As traditional lenders only can use interest and fees to cover their losses, they are at a structural disadvantage.


Key points include:

  • Consumer psychology
  • Limited financial planning and self-control
  • Credit bureau regulations


Read the full article, How will BNPL Affect Credit Risk?, on LinkedIn.


Tobias Baer takes on the role credit bureaus play and misguided government prescriptions in this post. 

Credit bureaus are both feared and loathed – feared because their revealing of “sins” of the distant past can dash many a dream such as buying a house or a car, renting a flat, or even just getting a postpaid mobile plan, and loathed because their verdict on an applicant sometimes appears unfair or even incomprehensible – e.g., when sensibly taking up an interest-free “Buy Now, Pay Later” offer from the likes of Karna causes the credit score to fall rather precipitously.

On the upside, there is therefore much to be improved (in the US and many other markets) – ranging from the trivial (such as better protection from plainly wrong data and identity theft) to the visionary (such as eliminating racial and gender-based discrimination perpetuated by credit scores). On the downside, the role credit bureaus play with regard to these problems is poorly understood, and hence many prescriptions discussed by politicians and the media are misguided and at times outright dangerous. Beware the unintended consequences! Recent years have seen a lot of innovation and movement in the credit reporting agency industry. Across the globe, credit bureaus have been adding additional, non-traditional data sources and sought to provide scores also for unbanked customers and new applications (such as predicting likelihood of returns for online shoppers). The IPO of Credit Bureau Asia Ltd in Singapore last year (up 46% since) and FinTech start-ups such as Nova Credit and Credit Kudos remind us of the growing potential for profits to be made in the space.


Key points include:

  • How to ensure high data quality
  • Reporting positive or only negative data
  • Fighting racial and other discrimination


Read the full article, Joe Biden could improve credit bureaus for real – here’s how, on LinkedIn.


Umbrex is pleased to welcome Yacine Berdjeghloul with Wolfinance Consulting.  Yacine is a bright Risk professional with a strong academic background and technical experience in modelling & coding. He has a high interest in solving complex issues, is self-motivated and entrepreneurial. He was among the top 5% of his Bachelor’s and in his previous job was presented the GE Award for “Inclusiveness” and “Expertise”. Alongside his technical capability, Yacine is an excellent communicator with a natural ability to establish rapport. Living in the Netherlands, he enjoys nature, movies and spending time with his family. His favourite animal is, you might have guessed, the Wolf. The Wolf is a symbol of guardianship, instinct, loyalty, and spirit.

The Wolf represents strong connection with instincts and intuition, high intelligence and communication – qualities we all should aspire to.