How Cashflow Data Uncovers Hidden BNPL Debt Impact on Credit Union Members

Guest Editorial by Brian Reshefsky, CEO of EDGE

The financial landscape has undergone a quiet revolution that most credit unions haven't fully recognized. While these institutions continue to rely on traditional credit reporting to assess member creditworthiness, a parallel lending ecosystem has emerged that operates largely outside conventional oversight mechanisms. Buy Now, Pay Later (BNPL) services have experienced explosive growth, fundamentally altering how consumers access credit while remaining virtually invisible to the financial institutions that serve them.

The Explosive Growth of BNPL Among Credit Union Members

Brian Reshefsky

Cashflow data usually comes through open banking connections where members enter their online banking credentials and consent to share financial accounts. EDGE uniquely leverages direct core integrations for the credit unions we serve, eliminating the friction of credentialing and unlocking instant cashflow insights on members at every relationship stage – from marketing to underwriting to collections.

Our cashflow insights include members’ income, balances, savings, and debt payments. The last category includes “Buy Now, Pay Later” (or BNPL) obligations since those balances and payments are typically not reported to the credit bureaus. As such, EDGE clients rely on our reporting these “hidden liabilities” to ensure accurate leverage and ability to pay calculations. In this capacity, EDGE processed nearly 170,000 inquiries for loan applications by credit union members during the 12 months ending March 2025, representing over half (~2,400) of U.S. credit unions.

Here's what we found:

• Nearly half of all credit-active members have made payments to BNPL providers within the past year, with the most popular services being Afterpay, Klarna, Affirm, Sezzle, and Zip/Quadpay. This isn't a niche phenomenon affecting a small subset of your members – it represents a mainstream shift in consumer credit behavior that has occurred largely while credit unions have remained flat-footed.

• The growth trajectory becomes even more concerning when examining usage patterns. Among members utilizing BNPL services, 53% limit themselves to a single provider, but 47% are incurring concurrent obligations across multiple platforms. Nearly a quarter of BNPL users maintain relationships with three or more different providers simultaneously, creating a web of obligations that no single lender can fully observe through traditional credit assessment methods.

• The demographic most heavily utilizing these services consists of members who are otherwise credit active. Among credit union members maintaining relationships with four or more traditional lenders, 75% also carry BNPL obligations. This pattern indicates that BNPL isn't primarily serving as a credit alternative for underserved populations, but rather as additional leverage stacked on top of existing debt obligations. The correlation between traditional credit usage and BNPL adoption suggests these services are compounding rather than replacing conventional lending relationships.

The Invisibility Problem in Traditional Credit Reporting

The fundamental challenge stems from how BNPL providers position themselves within the credit ecosystem. These companies deliberately market their services as "credit neutral," meaning they typically avoid hard credit inquiries and don't report payment histories to major credit bureaus. While this approach appeals to consumers concerned about the impact on their credit score, it creates massive blind spots for other lenders attempting to assess applicant creditworthiness.

Traditional credit reports, which form the basis of most credit decisions, fail to capture members' entire debt service obligations. When Afterpay users make their scheduled payments, when Klarna customers fulfill their installment plans, when Zip borrowers service their loans – none of this activity appears on standard credit bureau reports. The result is that credit unions are making lending decisions based on incomplete financial pictures, potentially dramatically underestimating members' true debt burdens.

The information asymmetry extends beyond individual lender blind spots to create systemic risk across the BNPL industry itself. Since most BNPL providers don't report to or pull from traditional credit bureaus, they can't see each other's obligations when making their own underwriting decisions. This creates an environment where loan stacking can occur without any single lender recognizing the cumulative debt load being assumed by individual borrowers.

The timing lag in traditional credit reporting compounds this problem. Even when BNPL obligations eventually do appear on credit reports, there's typically significant delay between when debt is incurred and when it becomes visible to other lenders. Credit unions making real-time lending decisions are operating with information that may be weeks or months behind your members' true financial situation.

Impact on Debt Service Ratio

The practical implications of hidden BNPL obligations become clear when examining their impact on debt-to-income (DTI) calculations. Income can be instantly verified for credit union members who directly deposit their paychecks. In turn, analyzing BNPL payments relative to this income reveals dramatic understatement of debt service ratios when BNPL obligations are excluded from calculations.

Among members utilizing BNPL services, 21% show DTI increases of at least 10 percentage points when these hidden obligations are included. For members carrying significant BNPL obligations, the impact can be even more substantial, with 8% seeing their DTI ratios increase by more than 20 percentage points. These aren't minor adjustments – they represent the difference between members appearing to have manageable debt loads and being leveraged beyond acceptable levels under most credit unions’ lending policies.

Incomplete debt service calculations aren't just academic concerns – they have real implications for loan performance and member financial health. Credit unions making lending decisions based on artificially low DTI calculations may be approving loans for members who lack capacity to service additional debt, potentially setting up both your institution and your member for financial distress.

Identifying and Addressing Hidden Debt

The solution to the BNPL visibility problem lies in incorporating cashflow insights that utilize members' transaction data rather than relying solely on traditional credit bureau information. By examining members’ banking activity, you can identify payments to BNPL providers in real-time, regardless of whether these obligations appear on credit reports.

Looking directly at the data on your core – often referred to as first-party data – represents the most efficient approach for credit unions to access and analyze comprehensive financial data. Rather than requiring members to manually provide bank statements or go through cumbersome income verification processes, the data on your core enable instant visibility into your members’ complete financial picture. First-party data reveals not only BNPL obligations but also income patterns, spending behaviors, and other financial indicators that provide a fuller view of your members’ financial health.

Open banking technology offers another avenue for accessing comprehensive financial data. By enabling members to securely share their accounts at other financial institutions, credit unions gain visibility into “off us” banking behaviors to better understand members’ income and obligations alike. This approach is particularly valuable for members who maintain their primary banking relationships elsewhere while looking to borrow from your credit union.

Implementing these solutions requires minimal operational changes for most credit unions. First-order cashflow insights simply automate the calculations and documentation where your underwriters (and often members) are spending considerable time today.

As credit unions gain confidence in these automated insights, they evolve to automated decisioning. Cashflow insights platforms integrate directly with your loan origination system, enabling underwriting with comprehensive debt service calculations that include both traditional and non-traditional obligations like BNPL. Rather than replacing or revamping longstanding credit policies and processes, these tools enhance decision-making by filling critical information gaps.

The benefits in member care extend beyond improved risk assessment. Credit unions that can identify members struggling with multiple BNPL obligations and high-interest loans are offering proactive financial counseling and more attractive consolidation products. This capability transforms a risk management challenge into a member service opportunity, enabling credit unions to provide the personalized financial guidance that differentiates you from efficiency-driven fintechs and big banks.

For credit unions committed to truly knowing your members' financial situations, embracing cashflow insights isn't just a risk management necessity – it's a return to true relationship banking that has always been the foundation of the credit union movement. As the financial services landscape continues to evolve, institutions that maintain complete visibility into member finances will be best positioned to serve their communities while managing risk effectively.