How BNPL Saved Christmas for 25% of Holiday Shoppers

• The Naughty: One-third of consumers report plans to cut their holiday spending this year.
• The Nice: 3 in 4 budget-conscious consumers reached for credit products, including split-pay schemes such as BNPL, to pay for holiday shopping this year.
• The Naughty: Split-payment methods, such as BNPL, present challenges that merchants and consumers must consider.

The 2023 holiday shopping season is ending, and inflationary pressures continue to impact consumer spending. PYMNTS Intelligence’s research on holiday shopping trends shows that 21% of consumers said they would spend more on holiday expenses this year compared to last, but 34% of consumers planned to spend less this year. Consumers unlikely to spend or spending less this year cited higher costs, personal finances and the impact of inflation as key reasons.

Moreover, consumers across all demographics turned to credit products to manage their spending this year, with split-pay options such as buy now, pay later (BNPL) emerging as a viable alternative for shoppers to pay for purchases they otherwise could not afford. While 62% of holiday shoppers surveyed planned to use credit cards this holiday season, 24% planned to use BNPL. We observed significant generational differences in holiday shoppers’ credit product choices. For instance, baby boomers and seniors were the most likely to use credit cards, while Generation Z consumers were the most likely to turn to BNPL.

Split-pay options are also notorious due to issues that both consumers and merchants may not consider until it is too late. Merchants believe that BNPL can drive consumer spending, yet one-quarter cite the high risk of payment failure as an issue. Meanwhile, one-third of consumers not using BNPL cite fear of overspending or too much existing debt as a deterrent. At the same time, consumers complain when merchants do not offer BNPL, suggesting that split-pay options, whether naughty or nice, are here to stay.

These are just some of the findings detailed in “The Naughty and Nice of Using Credit for Holiday Spending,” a PYMNTS Intelligence and ACI Worldwide collaboration. This report is based on three census-balanced surveys conducted in March, August and September about consumers’ experiences using credit products and a survey of 100 merchant executives on the benefits and challenges of offering split-pay options such as BNPL. This edition examines how consumers used credit products this holiday season, along with their preferences and expectations when choosing split-pay options.

Key Findings

The Naughty: One-third of consumers will cut their holiday spending this year.

Although 21% of consumers will spend more on holiday expenses this year than last, 18% will spend less and 16% will spend much less on holiday expenses this year. Consumers who predict spending much less on holiday expenses say they will spend 55% less on non-gift holiday expenses and 42% less on gifts. Among consumers unlikely to spend or who will spend less this holiday season, 57% cite higher costs, 52% cite their personal finances and 50% cite the impact of inflation.

The Nice: 3 in 4 budget-conscious consumers reached for credit products, including split-pay schemes such as BNPL, to pay for holiday shopping this year.

Holiday shoppers reaching for credit products might not be who merchants expect. Data shows that 73% of consumers planning to spend much les s and 86% of consumers planning to spend much more this holiday season planned to use credit to pay for holiday purchases. High-income consumers were more likely to spend more and less likely to cut back on holiday spending this year than last, and credit products were particularly popular among these consumers.

This year, 87% of holiday shoppers annually earning more than $100,000 said they were likely to use credit products to pay for holiday purchases, compared to just 62% of those annually earning less than $50,000. High-income consumers were also the most likely to say they tend to use credit products to access rewards, at 68%, and to manage their spending, at 50%, compared to low-income credit users, at 50% and 40%, respectively. On the other hand, low-income consumers, at 28%, were more likely to say they use credit because they could not otherwise afford the purchase, compared to 15% of high-income consumers. Financing remained a key payment alternative this holiday season, though consumers had diverse reasons for tapping credit options.

Consumers had to navigate the evolving landscape of split-pay credit products, such as BNPL, this holiday season. These alternatives to traditional credit cards are growing in popularity and notoriety, especially among younger consumers. While data shows that 62% of holiday shoppers planned to use credit cards and 24% planned to use BNPL, data shows significant generational differences in holiday shopping credit preferences. While 68% of baby boomer and senior holiday shoppers planned to use credit cards, just 44% of Gen Z holiday shoppers planned to do so. BNPL was especially popular with younger consumers: 39% of Gen Z consumers planned to use it, compared to just 8.9% of baby boomers and seniors. Meanwhile, 34% of Gen Z consumers said they do not own a credit card, compared to just 14% of baby boomers and seniors, suggesting that younger generations may have less access to traditional credit cards, making them more likely to reach for BNPL.

The Naughty: Split-payment methods, such as BNPL, present challenges that merchants and consumers must consider.

Despite high consumer interest, 40% of shoppers avoid using split-payment methods. While 57% avoid split-payment options simply because they do not need to finance their purchases, 37% do so either because they believe they will overspend or have enough existing debt.

Data shows that many consumers plan to cut back on holiday spending this year, yet seven in 10 merchants believe BNPL options can drive higher spending. Even so, merchants that allow consumers to pay with BNPL acknowledge that they face various challenges. The top issue affecting merchants offering BNPL is difficulties integrating different systems, cited by 40%, followed by high investment or set-up costs, cited by 37%. Merchants offering BNPL also report a high risk of fraud or data theft as a challenge, at 29%, as well as a high risk of payment failure, at 24%.

BNPL is not a panacea since both consumers and merchants face issues. They must weigh both the benefits and difficulties of using BNPL.

The Nice: BNPL and other credit products will allow 1 in 5 credit users to finance holiday purchases they could not otherwise afford.

Following a period of high inflation, credit alternatives such as BNPL have helped consumers maintain purchasing power. Younger consumers, in particular, find credit helpful for managing their spending: 54% of Gen Z consumers and 52% of millennials use credit products because they help them manage spending. They also rely on credit for larger purchases. We found that 32% of millennials and 28% of Gen Z consumers reach for credit products to finance large purchases. A quarter of millennials say credit allows them to pay for purchases they could not otherwise afford.

It may come as little surprise then that both consumers and merchants are satisfied when consumers decide to use BNPL. In fact, 79% of consumers who have used BNPL report being very or extremely satisfied with it, and 82% of merchants offering BNPL were at least somewhat satisfied with their decision to do so.

Merchants report several benefits when offering BNPL: 71% of merchants report increased sales, and 55% report improved customer satisfaction and gaining new customers. In addition, 53% of merchants offering BNPL report customer retention as a benefit, and 45% of merchants say BNPL gives them a competitive advantage. In fact, one-quarter of merchants have received complaints from consumers that they did not offer sufficient BNPL options, suggesting that many consumers expect split-pay alternatives to traditional credit cards.

Conclusion

Faced with continuing inflation, consumers entered the 2023 holiday shopping season looking for ways to manage their spending, with one-third planning to cut back this year. Many consumers relied on financing, including split-pay plans such as BNPL, to pay for holiday shopping. These alternative credit products helped consumers maintain purchasing power and allowed younger consumers, particularly those without access to credit cards, to finance holiday shopping and make purchases they could not otherwise afford.

Adopting split-pay credit products is not without its challenges. Merchants recognize that split-pay credit products can increase consumer spending, yet they also face integration and cost issues, not to mention risks of fraud and payment failure. On the other hand, some consumers shy away from using split-payment methods because they worry they will overspend. Nonetheless, many consumers expect, if not prefer, split pay to traditional credit cards, a clear indication that merchants offering BNPL can retain existing customers and attract new ones.

Methodology

“The Naughty and Nice of Using Credit for Holiday Spending,” a PYMNTS Intelligence and ACI Worldwide collaboration, is based on four surveys: a census-balanced survey of 3,396 U.S. consumers conducted between March 16 and March 21 about their experiences related to using credit; a census-balanced survey of 2,572 U.S. consumers conducted between Aug. 8 and Aug. 12 examining their interest in using split-pay options, such as BNPL; a census-balanced survey of 3,302 U.S. consumers conducted between Sept. 20 and Sept. 26 that explored how consumers planned to use credit products this holiday season; and a survey of 100 merchant executives on the benefits and challenges of offering split-pay options, such as BNPL.