BNPL eats away at credit card usage, says JD Power – Digital Transactions
Consumers are spending significantly less on their major credit cards, according to JD Power’s 2022 U.S. Credit Card Satisfaction Study.
Overall, credit cardholders are spending 42% of their monthly spending on their primary credit cards, down from 47% in 2021 and 2020, and down from 50% from 2019. The decline comes despite an increase in five points year over year, 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.
“Credit card issuers are doing relatively well in building strong relationships with their customers in a highly uncertain economic environment, but there are real concerns on the horizon,” said John Cabell, director of banking intelligence and payments at JD Power. a prepared statement. “Chief among them is the declining share of spending on major credit cards.”
Despite recent spikes in travel and spending, card holders have generally taken a more cautious stance with credit card spending over the past five years. They are increasingly turning to other channels, such as debit cards, BNPL and even cash. Ironically, debit cards are often used to fund the installment payments involved in BNPL programs.
To offset lower spending on primary cards as the current economic cycle enters its next stage, Cabell says it will be critical for card issuers to improve product value and increase customer support by financial difficulty.
Current economic conditions have put more consumers under financial stress, with 57% of credit card holders now classified as financially unhealthy, up four percentage points from a year ago, according to JD Power. Additionally, 22% of consumers say their financial situation is worse than last year, compared to 18% who said this a year ago, and 49% say they have revolving debt on their primary cards, compared to 43% in 2021. .
Financial stress could cause consumers to re-evaluate their credit choices. Only 31% of credit card customers believe that their frequent purchases fully maximize their rewards earnings. “As the economy tightens and new lending alternatives continue to emerge, now is the perfect time for customers to re-evaluate their current card choices to ensure alignment between spend and rewards/ benefits,” the study says.