It’s not often that a survey comes back with a finding of zero. Even the moon’s crust contains 45% oxygen. On the debate over buy now, pay later (BNPL) siphoning sales from store-issued credit cards, however, the results are in, and the big takeaway stat to focus on is “zero.”
PYMNTS’ Karen Webster and PayPal Senior Director of Global Credit Risk Steve Mikulcik discussed key findings from “The Truth About BNPL and Store Cards,” a PYMNTS and PayPal collaboration that asked nearly 2,200 consumers if one takes from the other.
Get the study: The Truth About BNPL and Store Cards
Starting with the study’s astounding data point that zero percent of consumers with store cards paid for their most recent eligible purchases using a BNPL option, Mikulcik said: “I was surprised it ended up being zero. I had a hunch it was going to be pretty low, but zero was definitely a little unexpected. It does make sense as we look at the data.”
The data, as stated in the report, is that close to 60 million U.S. adult consumers bought from merchants using their store card programs in the prior 30 days, while only 8.3% — a projected 4.9 million people — used a BNPL option, even if it was available at checkout.
BNPL cannibalization of store card programs is a legitimate concern for merchants, as these programs serve many purposes for merchants, and third-party payments can erode them.
“These merchants have a lot vested in their store cards,” Mikulcik said. “They have great programs often used by their most loyal, engaged customers. Rightfully so, anything that’s new causes concern. Some merchants get significant revenue off their store cards program.”
He’s glad to have hard data to back his own belief that these methods are complementary, not competitive, he said: “One of the things that really stood out is that these products are different and distinct, and they have unique benefits.”
Per the study, BNPL and store-issued cards are a “natural pairing stemming from the fact that these consumers are chiefly interested in store cards and BNPL options for different reasons and, therefore, rarely use them to purchase the same products,” he said.
BNPL for Store Card Lead Gen
The stunning rise of BNPL is altering ideas around who can access credit and how it’s used, and the revolving credit issuers are understandably nervous about this interloping payment type.
Mikulcik doubted it was a real problem, but merchants need hard decisioning data.
“My hypothesis going in was that store cards are really used by consumers that are already extremely loyal to that brand,” he said. “They intend to shop with that brand in the future, and they simply want to be rewarded, whether it’s cash back, coupons [or] discounts.”
But the BNPL value prop differs in that it’s primarily used for higher ticket items requiring the ability to pay over time. Players like PayPal dropping late fees plays to that trend.
“It’s more about that financial flexibility and maybe helping them manage a larger purchase than they would normally make,” he said.
Referencing other data he’s recently reviewed, Mikulcik told Webster that with BNPL expected to be used for 4% of retail purchases within two years, “As a merchant, I don’t … want to miss out on the opportunity. If they don’t offer that buy now, pay later option, there’s another merchant that does. They would rather convert with [BNPL] than not get the sale at all.”
There’s an upside to that as well for card-issuing stores: customer acquisition.
Invoking a hypothetical where a consumer uses BNPL to buy a new product they end up liking, that merchant may have just generated a lead for a new store card holder.
“Once they’re in that merchant’s pipeline, the merchant can then convert them to one of their highly engaged shoppers,” Mikulcik said. “To me, that’s the biggest learning. Store card shoppers are already loyal, and they’re already engaged. Buy now, pay later could be used to generate leads and potentially further engagement for that merchant.”
Evolution on Both Fronts
As the market’s largest BNPL provider, PayPal doesn’t charge merchants for using that payment feature. It’s rolled up in merchant fees and acts as a value-add to convert more sales.
It’s 2021 acquisition of Japanese BNPL brand Paidy strengthened its hand in the installment credit sector, but to PayPal it’s an option designed to help PayPal merchants succeed.
“PayPal’s objective is help merchants sell more,” he said. “We’re making money from the normal payment processing revenue. We don’t need the upcharge for this because we believe it generates that engagement and that loyalty, and PayPal’s uniquely positioned as a two-sided network.”
“When our merchants sell more, our consumers spend more and vice versa,” he added.
Mikulcik said the simple fact as he sees it and conveys it to merchant partners is that BNPL and store cards appeal to different consumer segments for different reasons. The credit-averse like the simplicity of pay in predictable installments, and that appeal even crosses generational boundaries.
Having started out with Bill Me Later — PayPal’s foundational installment product back in the eBay days — Mikulcik is a seasoned BNPL pro with the bona fides to make predictions.
What does he predict for the store card versus BNPL rivalry that isn’t really a rivalry?
“It’ll continue to evolve, and you’ll see increased value proposition on both sides,” he said. “The store cards are important parts of those merchants’ revenue, so they’re going to evolve. They need to listen to their customers as well. Our customers just happen to be merchants and consumers. We listen to both, and we evolve our product set to meet their needs over time.”
Get the study: The Truth About BNPL and Store Cards
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