FinTech Tracker® Series Report

A Season of Change: Credit Cards vs. BNPL for the Holiday Retail Matchup

November 2023

As holiday cheer grows, a financial showdown between BNPL and credit cards is taking center stage. Who will claim the retail throne this season?

PYMNTS
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This year’s holiday season promises fierce competition between BNPL services and credit card installment plans as consumers are expected to gravitate more toward flexible financing options to cover their holiday purchases. Both BNPL providers and credit card issuers are already jostling for their favor — a contest that may well be determined by the role of enhanced features and perks.

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BNPL’s journey is now one that goes beyond mere transactional convenience. The changes underway in the industry will diversify the pathways to financial well-being and significantly impact consumers’ financial decisions. From credit enhancement to flexible financial management, BNPL’s unanticipated advantages are even capturing more of the attention — and loyalty — of a key consumer group.

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BNPL has proven its worth, prompting consumers to seek even more from the industry. Although shoppers are aware of the incentives credit card issuers offer to promote enrollment in their own installment plans, many consumers want to stick with BNPL services — if BNPL providers can deliver similar experiences. Can the industry rise to this challenge and broaden its appeal, or will it risk eroding its consumer base by failing to meet these demands?

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    Once trendy payment alternatives, buy now, pay later (BNPL) services now offer a blend of financial flexibility and empowerment that is influencing how consumers engage with retail and credit. However, BNPL is not the only installment plan option available. Credit card companies have also entered this arena. With the holiday season underway, the ongoing tug-of-war between these more traditional credit players and BNPL is intensifying. This competitive spark raises critical questions: How will BNPL providers adapt to meet the changing demands of consumers, and what new strategies will the industry embrace to outshine credit card installment options? The clues lie in understanding not only the mechanics of BNPL offerings but also in changing consumer expectations.

    Jingle Bills: BNPL’s Challenge to Credit Card Installment Plans

    This year’s holiday season promises fierce competition between BNPL services and credit card installment plans as consumers are expected to gravitate more toward flexible financing options to cover their holiday purchases. Both BNPL providers and credit card issuers are already jostling for their favor — a contest that may well be determined by the role of enhanced features and perks.

    Holiday shoppers plan to jingle all the way with installment plans.

    With the 2023 holiday season in full swing, 41% of shoppers are planning to lean heavily on installment plans, including those offered by BNPL providers and card companies, for their holiday purchases. This trend toward using more flexible financing is especially prominent among younger shoppers eager to keep a tight rein on their holiday spending, with more than half of millennials and Gen Z consumers planning to lean more on BNPL this season.

    41%

    of shoppers plan to increase their reliance on installment plans this holiday season.

    For retailers and BNPL providers, recognizing and catering to this trend will be key to catching the crest of the holiday shopping wave.

    Credit card installment plans maintain a slight edge over BNPL.

    While credit cards might feel so yesterday, credit card installment plans have proven more popular than even BNPL ones — but not by much. A recent survey shows that while 72% of shoppers chose credit-card installments for non-grocery retail purchases, 64% opted for BNPL — a strong showing that, nevertheless, underscores the need for BNPL to compete more effectively.

    BNPL needs a feature boost.

    Despite the robust growth of BNPL services, the absence of perks akin to what credit cards offer is denting their appeal. Without the draw of card-like benefits but with the constraints on credit limits, BNPL options are struggling to garner interest from consumers for larger purchases. In-store availability is another stumbling block. Can BNPL providers level up their game to match the advantages of credit card installments? Rewriting the playbook on consumer finance might just hinge on these feature-rich innovations.

    Flexibility Meets Finance: BNPL’s Role in Credit Empowerment

    BNPL’s journey is now one that goes beyond mere transactional convenience. The changes underway in the industry will diversify the pathways to financial well-being and significantly impact consumers’ financial decisions. From credit enhancement to flexible financial management, BNPL’s unanticipated advantages are even capturing more of the attention — and loyalty — of a key consumer group.

    Nearly 25%

    of users have harnessed the power of BNPL to strengthen their credit scores.

    BNPL services are the new credit-score allies.

    BNPL services have become unexpected credit-score champions. Nearly one-quarter of users have harnessed the power of BNPL to enhance their credit scores, with 20% eyeing BNPL as a significant credit-building opportunity. The credit scoring scene may not yet fully acknowledge BNPL transactions, but a change is in progress, as credit bureaus are starting to include BNPL in personal credit records.

    BNPL excels where credit cards fall short.

    Flexible repayment terms are still the secret sauce in BNPL’s recipe for success. This contrasts sharply with credit cards, for which only a fraction of users currently find the terms reasonable. What is more, 25% of BNPL users have discovered that BNPL’s sensible repayment terms are a stepping stone toward more streamlined budgeting, highlighting BNPL’s potential for shaping personal financial management.

    BNPL is the rising star among young consumers.

    BNPL services are rapidly becoming essential financial management tools, especially among the younger crowd. For example, 61% of U.K. consumers ages 26-34 are using BNPL not only for purchases but also as a means of managing their cash flow more effectively. For BNPL providers, understanding these innovative use cases could be akin to discovering the new North Star of personalized finance.

    BNPL’s Road to Industry Maturity

    BNPL has proven its worth, prompting consumers to seek even more from the industry. Although shoppers are aware of the incentives credit card issuers offer to promote enrollment in their own installment plans, many consumers want to stick with BNPL services — if BNPL providers can deliver similar experiences. Can the industry rise to this challenge and broaden its appeal, or will it risk eroding its consumer base by failing to meet these demands?

    Consumers share their wish list of missing features in BNPL.

    By drawing inspiration from the credit card features that have long wooed consumers, the BNPL industry can seize the opportunity to radically reshape its service features. Thirty-eight percent of consumers are clamoring for more robust reward schemes, while 33% are on the lookout for wider in-store availability. Not far behind, 32% of users are advocating for higher credit limits — a call to action for BNPL providers to enhance their feature offerings.

    80%

    of BNPL users start their shopping journey on BNPL platforms.

    BNPL’s new role in the consumer shopping journey.

    A new shopping trend is emerging: 80% of BNPL users are initiating their purchase journeys on BNPL platforms, transforming these services from mere payment methods into bona fide shopping destinations. This shift underscores the swelling influence of BNPL in shaping retail experiences. For BNPL providers, it is a clear signal to ensure their platforms are not only about seamless transactions but also about spearheading the shopping experience, one in which convenience is not just king — it is the whole kingdom.

    Not offering BNPL is a deal-breaker for Gen Z.

    Once bitten by the BNPL bug, Generation Z shoppers seem to be sticking with it — even more so now that traditional lines of credit have become pricier and less accessible. The real shocker? A sizable 27% of them would rather ditch their cart than settle for a payment option that is not BNPL. For more than one-quarter of Gen Z, BNPL has become the definitive line in the sand for their spending, particularly for those “nice-to-have” purchases.

    Next-Level BNPL: A Guide for Providers to Dominate Retail

    BNPL providers stand at the crossroads of a formidable challenge and an enviable opportunity. The demand for flexible financing is on the rise, and a captive market is on standby — just waiting for that next iteration of BNPL appeal. With credit card companies rolling out the red carpet of incentives for their installment plans, the next steps for BNPL providers are clear: Supplement their flexible financing options with experiences that resonate with shoppers’ changing preferences.

    PYMNTS Intelligence prescribes the following actionable roadmap:

    • Introduce and enhance reward programs: Develop comprehensive reward schemes that rival those offered by credit cards. Consider partnerships with retailers to offer exclusive deals, cash back or points systems, thus enhancing the appeal of your BNPL services.
    • Place user experience at the center of platform design: Leverage the trend of starting shopping journeys on BNPL platforms. Enhance the user experience with features that go beyond transactions and turn your platforms into all-encompassing shopping destinations that are much more likely to strengthen customer loyalty.
    • Tailor strategies to Gen Z’s preference for BNPL: Design marketing strategies and product offerings aligned with Gen Z’s unique financial habits and preferences. Focus on digital engagement, a robust social media presence and their values of flexibility and transparency.
    • Optimize payment plans for larger purchases: Address the gap in accommodating larger purchases through BNPL. Innovate payment plan structures that offer greater flexibility for higher-priced items, possibly through extended payment terms or variable interest-rate options.
    • Expand in-store availability: Amplify the visibility of BNPL options across physical retail spaces. This sharpens the competitive edge against traditional payment methods by offering customers flexibility at the point of purchase — and potentially boosts conversion rates.

    By adopting these targeted strategies, BNPL providers not only can adapt to current market demands but also can position themselves at the vanguard of financial services innovation — and that is a star consumers will look up to.

    About

    Sezzle is a payments company on a mission to financially empower the next generation. Sezzle’s payment platform increases purchasing power for millions of consumers by offering interest-free installment plans at online stores and in-store locations. When consumers apply, approval is instant, and their credit scores are not impacted unless the consumer elects to opt in to Sezzle’s credit-building feature, Sezzle Up. This increase in purchasing power for consumers leads to increased sales and basket sizes for the more than 41,000 active merchants that offer Sezzle.
    As the only B Corp in FinTech, Sezzle proves that all industries — even payments — can do their part to provide solutions and make a positive impact today and into the future. For more information visit Sezzle.com.

    PYMNTS INTELLIGENCE

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multilingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Tracker:
    Managing Director: Aitor Ortiz
    Senior Writer: Randall Brown

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