Point-of-Sale Loan Applicants Generally Use Other Forms of Credit More Actively
New TransUnion study analyzes the role of alternative financing options in the credit market and the impact on consumers
A new study from TransUnion (NYSE: TRU) found that 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.
The study, Understanding the Evolving Point-of-Sale Industry, was featured at the virtual 2021 TransUnion Financial Services Summit, Smarter Decisions: Emerging for Growth, which is attended by financial services executives from across the country.
Consumers who may utilize point-of-sale financing are not doing so at the expense of traditional credit. 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.
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.
BNPL and POS offerings did not appear to have a major impact on a consumer’s usage of other forms of credit. In fact, the BNPL/POS applicants generally used other forms of credit more than the rest of the population.
“Consumers who may utilize point-of-sale financing are not doing so at the expense of traditional credit. 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,” said Liz Pagel, senior vice president of consumer lending at TransUnion. “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.”
The ease of application and predictable payment plans allow consumers to spread smaller payments over a period of time to afford larger ticket items. A TransUnion survey of nearly 1,000 BNPL users 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.
Consumers who apply for POS financing are an attractive segment for acquisition growth
The study looked at the credit profiles of over 6 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. Credit cards were most popular among POS financing applicants (89%), followed by retail cards (75%) and auto loans (73%).
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. Card utilization levels, however, were very similar across risk tiers, with most consumers having open-to-buy available on their cards. This suggests that consumers are actively seeking POS financing even when they could have put the purchase on a card.
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.
POS financing applicants
General credit active population
POS financing applicants
General credit active population
Consumers that 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 found that while POS financing applicants perform slightly worse on credit cards, they outperformed the non-POS segment on unsecured personal loans. The healthy rates of delinquency demonstrated by POS financing applicants makes these consumers an attractive segment to target for acquisition growth.
“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.”
For more information on TransUnion’s study, please download the insight guide Understanding the Evolving Point-of-Sale Industry.
About TransUnion (NYSE: TRU)
TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing a comprehensive picture of each person so they can be reliably and safely represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good.®
A leading presence in more than 30 countries across five continents, TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people.