Split Payments May Boost Merchants’ Private-Label Card Momentum

For closed-loop systems — merchant-specific cards — split-payment options may spark both interest and momentum.

Less than a year ago, PYMNTS Intelligence found that more than a quarter of consumers had store cards in hand, and private-label card originations were increasing at a high single-digit percentage point rate. Consumers who owned private-label cards owned an average of two cards. In addition, one-third said they would be likely to use buy now, pay later (BNPL) for purchases over $1,000, which indicated that the private-label issuers and merchants would be wise to consider offering split payments to keep those cardholders loyal.

The Consumer Financial Protection Bureau noted toward the end of last year that spending on private-label cards trailed general-purpose cards. In 2022, at $180 billion for the latter category versus $3 trillion for general-purpose options.

The most recent earnings season data from some of the private-label giants — Capital One, Synchrony and Discover among them — showed that loan balances were increasing, but payment rates were slowing. Management, by and large, observed that net charge-off rates and delinquencies seemed to stabilize. Capital One detailed that its domestic card loans were up 5% from a year ago. Synchrony noted in its own earnings results that its average active accounts were up 5% year on year with purchase volumes up 3%. Discover saw its card loan balances grow by 13% as measured in the most recent quarter versus last year.

Split Payments Gain Ground

Breaking up payments over time might have a beneficial effect on private-label card adoption. PYMNTS Intelligence found that, overall, 3 in 5 shoppers opted for installment plans when shopping. Merchant card/store card installment plans attracted more than a third of consumers, proving especially popular with younger demographics, at nearly half of millennials and bridge millennials.

The installment options for private-label cards have gained embrace with consumers earning more than $100,000 annually, as more than 44% of high-earners used split payment arrangements through the past year.

Regardless of income level, three-quarters of consumers said that spend management was a key reason to use a split payment plan. For the users of merchant/store cards who chose split payments, 41% said the plans were convenient, and nearly a third said that there was little or no cost in using those plans.

There’s an added benefit, too, in the fact that roughly 22% of respondents said they had found rewards to be a compelling reason to choose an installment plan. (BNPL plans, by way of contrast, do not offer rewards.) A full three-quarters of users who took on private-label installment plans said they were “very” or “extremely” satisfied with those decisions.