BNPL is bad news for credit cards, maybe good news for debit
Digital transactions reported on a JD Power study that found credit card usage was declining despite consumer satisfaction with the service provided by credit card issuers. Since the first quarter of 2020, dollars spent on debit cards have exceeded those on credit for the first time, although this is beginning to decline as travel purchases return. J.D. Power suggests that part of the reason for the decline in credit card use may be the availability of BNPL options. Here is an excerpt from the article on digital transactions:
Overall, credit cardholders spend 42% of their monthly spending on their primary credit cards, down from 47% in 2021 and 2020 and 50% since 2019. The drop comes despite a year-over-year increase. another five points, to 810, in JD Power’s consumer satisfaction score for credit cards. According to the study, improvements made by card issuers to service, more favorable credit card terms, and mobile and communication factors/sub-factors are the main reasons for the increase in satisfaction. JD Power’s scores are based on a 1000 point scale.
According to the study, one of the culprits for the decline in card spending is buy now pay later loanswhich offer consumers an alternative and more flexible method of financing purchases than credit cards.
One of the advantages of BNPL loans is that consumers can pay for their purchases in a predefined number of interest-free installments, which increases their purchase volumes. Indeed, 44% of credit card customers say they would consider other financing options, such as BNPL, flexible finance/installment loans or personal loans when making major purchases, the study says. Of these payment options, BNPL is the most popular, with 28% of consumers saying they would consider a BNPL loan when making a major purchase. Reasonable fees and competitive interest rates are other factors helping consumers consider BNPL loans, says JD Power.
This may be an opportunity for increased use of debit cards. Debit cards are often the payment of choice for consumers when setting up a payment source for BNPL reimbursement transactions. This is something the debit issuer may want to encourage their debit cardholders using BNPL to consider.
Preview by Sarah CaveDirector, Debit and Alternative Products Advisory Services at Mercator Advisory Group