CHICAGO – Consumers seeking Buy Now, Pay Later (BNPL) and Point-of-Sale (POS) financing are also actively utilizing traditional credit, contrary to the assumption that these new credit offerings are taking market share away from credit card issuers and other lenders, according to a new study from TransUnion.
The study, Understanding the Evolving Point-of-Sale Industry, was released during the virtual 2021 TransUnion Financial Services Summit, “Smarter Decisions: Emerging for Growth.”
As CUToday.info has reported extensively and as TransUnion noted, BNPL and POS financing emerged as a popular offering among younger consumers, with Gen Z and younger Millennials (ages 18-30) making up the largest population distribution of consumers who applied for POS financing during the study period (32%).
Bridge Millennials (ages 31-40) and younger Gen X (ages 41-50) were also more likely to favor BNPL/POS with 78% of all POS financing applicants falling between the ages of 18-50.
According to TransUnion, BNPL and POS offerings did not appear to have a major impact on a consumer’s usage of other forms of credit.
A Growing Pie
In fact, the BNPL/POS applicants generally used other forms of credit more than the rest of the population, the analysis stated.
“Consumers who may utilize point-of-sale financing are not doing so at the expense of traditional credit,” said Liz Pagel, senior vice president of consumer lending at TransUnion. “We saw consumers who have applied for POS financing building balances on bank and retail cards, and applying for new credit at higher levels than the general credit population. These new forms of financing are growing the credit pie – opening up more opportunities for both consumers and lenders. Consumers are looking for new ways to finance purchases and the convenience and budgeting POS offerings provide are driving them to finance more, larger purchases.”
Ease of Application
As TransUnion noted, the ease of application and predictable payment plans allow consumers to spread smaller payments over a period of time to afford larger ticket items. TransUnion’s August 2021 Consumer Pulse survey included responses from nearly 1,000 recent BNPL and POS users and found that the majority of consumers cited spreading payments over time (29%) and an easy application process (13%) as the top reasons they used POS financing.
Lack of credit access, on the other hand, was not cited as a top concern for many consumers, TransUnion stated.
Attractive Segment
According to TransUnion, the study looked at the credit profiles of more than six-million POS financing applicants (defined as consumers with an inquiry on the TransUnion file from a POS lender) to better understand consumers interested in this type of product. The study profiled these consumers and examined their wallets and credit behaviors.
“The findings showed that POS financing applicants have more credit products, such as credit cards, retail cards and installment loans in their wallet compared to the general credit active population,” TransUnion said. “Credit cards were most popular among POS financing applicants (89%), followed by retail cards (75%) and auto loans (73%).”
In addition, the study found POS financing applicants also were more likely to have a greater number of cards in their wallet in comparison to the general credit active population.
Similar Utilization Rates
“Card utilization levels, however, were very similar across risk tiers, with most consumers having open-to-buy available on their cards,” TransUnion stated. “This suggests that consumers are actively seeking POS financing even when they could have put the purchase on a card.”
TransUnion further reported consumers applying for POS financing are also more likely to build or maintain credit card balances in the months following their inquiry than the general credit active population, “debunking the assumption that BNPL/POS are driving card balances down.”
The analysis found consumers who utilize BNPL/POS financing, however, still perform well and are on par with the general credit active population when it comes to delinquency. The study further found that while POS financing applicants perform slightly worse on credit cards, they outperformed the non-POS segment on unsecured personal loans.
‘An Opportunity’
The healthy rates of delinquency demonstrated by POS financing applicants makes these consumers an attractive segment to target for acquisition growth, TransUnion stated.
“While more and more consumers are participating in POS financing, these consumers are still demonstrating healthy rates of delinquency on traditional products and are highly engaged in the credit market,” said Pagel. “This highlights an opportunity for both traditional and POS lenders to provide more diverse credit solutions to this attractive segment.”