Matt Bivons is CEO and Co-founder of Canopy Servicing, an API-first, loan management and servicing platform. Matt previously served as VP and GM at GreenSky and head of growth at Earnest and VacayHero. Here he shares his thoughts on why fintech should embrace radical transparency
The Fintech torch passed in 2021 from OGs like Block and Marqeta to crypto trailblazers like OpenSea and Coinbase and BNPL leaders like Klarna and Afterpay. The transition, while smooth, came with some drawbacks. The changing of the guard brought a new level of scrutiny on Capitol Hill, where legislators struggled to understand new payment instruments and digital assets.
The questions asked in the hearings of the House Financial Services Committee are likely just the beginning. Buy Now Pay Later is a vanguard credit product, with much more innovation on the way. The enthusiasm for BNPL in 2020 and 2021 inspired a generation of Fintech entrepreneurs who are bringing new credit and lending products to market this year, facilitated by best-in-breed BaaS infrastructure and modern configurable ledgers.
But the evolution from inflexible, opaque, and high-risk financial instruments to highly configured, transparent, and safer products is not inevitable. It was clear from the recent hearings that the industry needs to do a better job educating consumers and lawmakers about new payment instruments and new asset types.
The lack of clarity is not confined to BNPL and crypto. A persistent haze around traditional financial services has long acted as a moat, protecting incumbents and their ageing infrastructure from upstarts.
“Confusion and misrepresentation were such a part of the credit card world of 2009 that not even the head of payments for Walmart could tell what any particular transaction cost,” Jim McKelvy, co-founder of Block, wrote in The Innovation Stack.
To ensure the promise of Fintech materialises, it’s time for the industry to embrace radical transparency in the form of better and documented industry processes and roles, anonymised data sharing, and clear and precise customer communication. While for some industries, this would not be considered “radical,” it is a sea change for financial services. Even in 2022, if you call your credit card issuer and ask how much you need to pay to close out your account, you will not get a straight answer.
Similarly, BNPL users can not easily uncover how their BNPL provider and their provider’s bank partners work with the credit bureaus — and what tradeoffs result from that relationship. One of the selling points of BNPL instruments offered by companies like AfterPay and Klarna is that their issuers usually do not do a “hard pull” of a borrower’s credit and use that in their decisioning. But there is a downside to this practice. In instances where BNPLs do not report lending activity to the bureaus, faithful BNPL users who regularly make their loan payments are not building credit.
The current state of credit bureau reporting of BNPL does not serve the bureaus, borrowers, BNPL providers, or their banks, yet it persisted even as BNPL grew to dominate consumer borrowing in states like California.
It was only toward the end of last year, when Equifax received anonymised data from a BNPL provider and ran its own analysis that it determined a policy change was necessary. According to the credit bureau, the data showed “individuals who pay their BNPL loans on time could potentially increase their FICO Score一helping consumers to both build and rebuild credit.”
In December, Equifax announced it would implement the industry’s first policy for accepting data on BNPL tradelines.
But much more needs to be done. Other credit bureaus need to join Equifax, and the BNPL providers need to start reporting the BNPL products to the bureaus. To ensure the highest degree of consumer and merchant trust — and allay concerns of policymakers – it is also critical that the credit-reporting policy is clearly explained to consumers.
BNPL is a good place to begin piloting radical transparency. By putting in place new transparency practices developed first for BNPL, Fintech in general will benefit from faster go to market, deeper customer relationships, and lower regulatory risk.
Information can be shared among ecosystem players with the goal of improving the collective user experience and answering questions like: Do we have the right regulatory frameworks in place? Do we have the right balance between protecting users and enabling innovation? Is Fintech furthering the greater good?
How much information should we share? What information should we share? These are healthy topics for Fintechs to discuss with their ecosystem partners, and I look forward to participating in these discussions.