Does Buy Now, Pay Later Cannibalize Private Label Credit Cards?

(New York, NY) In the ever-evolving landscape of retail finance, Buy Now, Pay Later (BNPL) is reshaping the way consumers approach their borrowing and purchasing decisions. As store card ownership wanes, BNPL has emerged as a compelling option for modern shoppers seeking flexibility and convenience. Auriemma Group’s latest issues of The Payments Report and Cardbeat US uncover the factors driving point-of-sale decisioning between BNPL and store cards, and how a good BNPL experience can increase store card acquisition.

Buy Now, Pay Later directly competes with store cards at the point-of-sale.

BNPL offers have become commonplace when shopping online or in-store. According to The Payments Report, 64% of debit cardholders say they have been offered an installment plan online (up from 45% in Q4-2019). In-store offers have also increased slightly, now at 36%. And about half of those offered an installment plan in either channel report enrolling in the past 12 months. This momentum is in direct contrast to store cards, whose ownership has dropped 14-percentage points (now 39%) since 2015.

“We found that at the point-of-sale cardholders are most interested in applying for these products for larger ticket size purchases,” says Jonathan O’Connor, Senior Manager of Research at Auriemma. “However, when both Buy Now, Pay Later and store cards are offered, cardholders are near evenly split on which option to select, with a slight preference towards Buy Now, Pay Later.”

But what would happen if retailers only offered store card applications at the point-of-sale? Not offering BNPL at the point-of-sale would have a marked impact on store credit card enrollment. 54% of those more likely to select BNPL say they would be likely to apply for a store card instead, if it were the only option presented to them.

Fee amounts and interest rates inform cardholders’ application decisions.

About four-in-ten debit cardholders say a retailer’s recommendation would make them likely to apply for a BNPL plan (41%) or store credit card (35%) at the point-of-sale. However, according to Auriemma’s research, it is the least important of the factors tested.

While a retailer’s recommendation or signage may initiate decisioning, BNPL and store card acquisition often hinges on fees, rates, and benefits. Over eight-in-ten debit cardholders say these factors are at least somewhat important when deciding whether to apply for a BNPL plan or store card at the point-of-sale. Second tier factors include trust in the brand, credit score impact, and one-time discount offers.

“Buy Now, Pay Later plans offer consumers payment flexibility without the commitment of applying for a credit card,” says O’Connor. “And while in many ways Buy Now, Pay Later can be seen as a competitor to card product acquisition and usage, the method can act as a gateway to a future card relationship.”

A good Buy Now, Pay Later experience could open the doors to store card application.

While there is much to be said about the ways BNPL competes against store cards, there is also evidence that the option could create a pipeline to store card enrollment. According to Cardbeat US, 41% of credit cardholders say a good BNPL experience with a brand they shop at regularly is likely to encourage them to apply for a store card, if offered. This is particularly true of Gen Z and Millennial cardholders.

54% of credit cardholders who were approved for a BNPL plan say they were offered a store card at some point during their experience. Notably, 69% of these cardholders applied and were approved for a store card during that time, highlighting just how synergistic the two products can be.

“Buy Now, Pay Later does have an impact on store card application, but the pendulum swings both ways,” says O’Connor. “Some consumers will choose Buy Now, Pay Later at the point-of-sale over and over again, while some will inevitably find their way to store card enrollment through positive BNPL experiences, demonstrating the potentially symbiotic relationship between the two offerings.”

Survey Methodology

The Payments Report

This Auriemma Group study was conducted online within the US by an independent field service provider on behalf of Auriemma Group (Auriemma) in March and April 2024 among 800 adult debit cardholders. The number of interviews completed for both is sufficient to allow for statistical significance testing among sub-groups at the 95% confidence level ±5%, unless otherwise noted. The purpose of the research was not disclosed, nor did respondents know the criteria for qualifying.

Cardbeat US

This Auriemma Group study was conducted online within the US by an independent field service provider on behalf of Auriemma Group (Auriemma) in March 2024 among 800 adult credit cardholders. The number of interviews completed for both is sufficient to allow for statistical significance testing among sub-groups at the 95% confidence level ±5%, unless otherwise noted. The purpose of the research was not disclosed, nor did respondents know the criteria for qualifying.

About Auriemma Group

For 40 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognized experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximize their performance. Auriemma serves the consumer financial services ecosystem from our offices in New York City and London. For more information, email Jonathan O’Connor at research@auriemma.group.