Banks Risk Missing the Subprime Consumer Comeback Story

Subprime consumers are navigating the credit markets through a mix of installments, informal borrowing and carefully managed payment behavior that traditional scoring models do not always capture.

PYMNTS Intelligence data on the behavioral profiles of subprime consumers argues that the subprime population represents a durable and identifiable segment of roughly 44 million U.S. adults, rather than a temporary byproduct of economic pressure. The report found that 17% of U.S. consumers identify as subprime, a share that has remained within a relatively narrow range for 47 consecutive monthly survey waves dating back to March 2022.

The stability of that segment matters for lenders, merchants and installment providers because the data suggests these consumers continue to seek credit access, even as many traditional products fail to align with their financial realities. The report notes that 35% of subprime consumers hold no credit or store card at all, compared to just 4% of super-prime consumers.

The report repeatedly points to one structural characteristic separating subprime consumers from the broader population: chronic pressure around bill payment. Fifty-five percent of subprime consumers reported living paycheck to paycheck with difficulty paying bills, more than double the rate for the overall population.

Traditional underwriting models remain heavily anchored to credit bureau data, revolving utilization and repayment history. Yet the PYMNTS Intelligence findings suggest that cash-flow behavior, spending priorities and payment sequencing may provide additional insight into repayment capacity and consumer stability.

The report highlights several behavioral indicators that may prove increasingly useful in underwriting targeted credit products for subprime consumers. One of the clearest involves the handling of periodic cash-flow events such as tax refunds. Among subprime consumers who received refunds, 67% described the money as either critical or very important to maintaining financial stability. Thirty-six percent directed the largest share of those funds toward everyday expenses or bills.

Those patterns suggest that liquidity management, rather than discretionary spending, often drives borrowing behavior.

Healthcare Spending Signals

Healthcare spending also emerged as a revealing signal. Among subprime consumers ages 18 to 43, 23% delayed a doctor’s visit because of cost, while 14% did not fill a prescription. The same cohort reported high reliance on alternative financing methods, including borrowing from family and using installment products to cover medical expenses.

For lenders, those behaviors may carry implications beyond healthcare finance. Consumers who consistently negotiate bills, maintain payment plans or prioritize essential recurring obligations may present a more nuanced risk profile than a credit score alone would indicate.

The report also found that subprime consumers concentrate around certain installment providers whose underwriting models tend to accommodate thin-file or nontraditional borrowers. Klarna, Sezzle, FuturePay and Quadpay/Zip all over-indexed with subprime users, while PayPal Pay in 4 and Uplift under-indexed sharply.

Evaluating Cash Flow

That divergence may reflect differences in underwriting criteria, approval thresholds or transaction design. It may also indicate that some providers are better positioned to evaluate near-term cash flow and repayment behavior instead of relying primarily on conventional credit attributes.

The demographic signals inside the report also point toward areas where more targeted underwriting may emerge. Married parents and single parents demonstrated sharply different definitions of essential spending, according to the report’s findings. The implication is that underwriting models incorporating household priorities and recurring obligations may produce a fuller picture of repayment behavior than static bureau files alone.

The broader issue for lenders is that the subprime market is anything but marginal. The report characterizes the segment as durable, measurable and economically significant.

That creates a challenge for issuers still relying on underwriting systems designed around traditional revolving-credit assumptions. Consumers increasingly using installment products, managing irregular cash flow and prioritizing essential expenses may not fit legacy risk models cleanly.

For lenders seeking growth beyond saturated prime-card markets, the underwriting question may become less about whether to serve subprime consumers and more about which behavioral signals best predict resilience.