Buy Now, Pay Smarter: How Digital Solutions Reshape Credit Behavior

Americans credit card payment delinquencies are starting to pile up.

Per the latest Federal Reserve report, credit card balances rose past $1 trillion for the first time in the survey’s history.

But things aren’t that simple.

“When we talk about consumers and credit, you really have to segment it into generational silos,” Jacqueline White, president at i2c, told PYMNTS CEO Karen Webster.

“What we are seeing is that the up and coming and younger generations are really approaching the entire concept of credit, their relationship with credit tools and products, very differently than older generations,” she said.

That’s because in today’s fast-paced world, consumers are constantly seeking ways to manage their cash flow in a predictable and efficient manner — and this desire for certainty extends to their purchasing habits.

“Younger generations,” White said, “are a lot of times more interested in buy now pay later at point of sale as opposed to using a line of credit. And when they do use credit, they’re much more interested in paying off those balances every month. It’s a more conscious use of credit.”

This craving for financial stability has given rise to the popularity of embedded finance and buy now pay later (BNPL) options across various industries, including eCommerce, retail, travel, hospitality, healthcare and education.

“When you get into older demographics, those numbers tell the story. Those are big, astronomic mind-boggling numbers,” White said.

Credit is a Reflection of the Economy

The integration of embedded finance and BNPL options into various industries is driven by businesses recognizing the potential of these offers in increasing sales and customer acquisition.

“When there’s an opportunity to spend $50 instead of $400, it’s just too easy. We’ve made embedded finance very, very simple and straightforward, which I think is a good thing,” White said.

“[It’s] an indicator that there is strong consumer demand for flexible payment options and a variety of payment options and plans. Customers want to be able to personalize their payment experience. And sometimes that might mean installment plans, sometimes it might mean a subscription-based model, or sometimes it could mean point-of-sale financing,” she added.

This allows individuals to afford and finance not just their wants, but also necessities like appliances, groceries, healthcare services, dental care and education.

And by leveraging data and artificial intelligence (AI), companies can assess risk and extend credit to a wider range of consumers, helping make more budgets work.

The Evolving Role of Credit Products

“We used to think about [credit] as ‘Oh, it’s a way to enhance your discretionary income or advance your ability to spend or purchase beyond what you have immediately available,’” White said. “But context is everything.”

That’s why as, embedded finance becomes more sophisticated, the use of AI technology and data and analytics are set to play a more prominent role in credit decisioning.

“Merchants and issuers will really benefit from mining the data and understanding not only what a consumer is trying to do, but also the why behind it: why are they trying to finance their grocery or use a credit line for education,” White said.

This understanding allows businesses to tailor credit options that align with their customers’ needs, empowering them to offer appropriate credit options and enhance the customer experience while simultaneously allowing for a more accurate assessment of risk and the extension of credit.

“You can increase your sales by offering customers more payment options and making the checkout process more convenient, so that they don’t have to worry about a loan or trying to get a line of credit because it’s already offered. It’s right there,” White said.

“You’re making needs and necessities more accessible. [Using data and AI] is definitely a way to boost customer acquisition by differentiating yourself in the market in a way that can draw an entirely new user base and customer base,” she added.

With the power of data and technology, businesses can meet the evolving needs of consumers, providing them with the certainty and convenience they crave in their credit experiences.

“We’re entering into an entirely new era where we can take this powerful AI, use data analytics, use machine learning, and customize and craft an experience and a product that I think is very valuable,” White said. “And you want that credit experience to delight and be personalized, but you also want it to recede into the background.”