Consumers are struggling with credit card payments – is BNPL a viable alternative?

The pandemic-driven lockdowns, the war in Ukraine, and the rising global cost of living have pulled the plug on economic balance. This is particularly challenging for young consumers, who are really feeling the squeeze. Though some good habits have been born as well – 63% of consumers surveyed globally have become more aware of budgeting in the past year, according to a new report by Marqeta. 

The report surveyed 4,000 people from the US, Australia, and the UK to analyze consumer perceptions on the use of credit cards, the BNPL boom, and what drives consumer preferences when it comes to lending.

The research showed people are struggling more with meeting the minimum payments on their credit cards than last year, up globally from 27% in 2021 to 37% in 2022. The situation was much worse for US respondents, 55% of whom had trouble meeting minimum payments.

The ratio isn’t evenly distributed among different age groups – the younger lot is sailing close to the wind due to pandemic-related job losses. In the US, 26-34 year olds struggled over twice as much (61%) as their older counterparts aged 51-65 years (29%) to meet minimum payments.

This situation was further catalyzed by rising inflation, causing low and medium-income households to tighten their belts and hold back on arbitrary spending. 62% of 18-25 year olds and 81% of those aged 51-65 in the US said they plan to reduce their spending.

With rising interest rates, credit card use is weighing on consumers. This has forced more than half (53%) of people – including 65% of millennials – to delay a major purchase on credit cards.

Inside the minds of consumers

Understanding what consumers want is an integral measure of product strategy design, which helps providers to build a long-lasting relationship with them. The report shows that 55% of consumers would like to receive advice and guidance and find it beneficial if their credit providers offer them value-added services, which could give them a competitive advantage over other issuers.

Americans were much more likely than other consumers to have more than one credit card. There are currently over 1 billion credit cards in circulation in the US. Credit card ownership among Americans increases significantly with age: 16% of 51-65 year olds had five or more credit cards, compared to 4% of 18-25 year olds.

Competition among issuers is increasing with the growing popularity of digital wallets, which means credit card providers will have to work harder to retain consumer mindshare. Providers who lag in this area face cardholder inactivity, resulting in around 40% of customers being lost to other banks or payment methods.

Almost three-quarters (74%) of US survey respondents are satisfied with their credit card provider. However, satisfaction levels are widely fragmented among different age groups. A quarter of 18-25 year olds were dissatisfied with their primary credit card – more than twice the percentage of people aged 35-50 and 51-65 (11%).

Regardless, consumers still rely on credit cards. The research shows that the most attractive benefits of credit cards include convenience (39%), rewards (38%), fraud protection (35%), and the ability to pay off over time (31%).

Consumers are placing huge value on financial security, with 68% of Americans now saying they are conscious about building and maintaining their credit profile.

Although there are many types of credit cards available, cash-back credit cards are a favorite among 59% of US consumers, making them by far the most popular card option. 

Younger consumers’ rising preference for debit and growing BNPL schemes is vying for credit card market share. Other than approval and eligibility criteria that continue to be a stumbling block for the younger generation, if credit card providers want to compete with BNPL’s popularity, they would need to modernize their customer satisfaction strategies.

BNPL options intensify the competition in the space by providing a unique twist on credit. Marqeta's research shows that consumers are increasingly turning to BNPL payments because of their many perceived benefits, which include ease of use, convenience, 0% finance, zero interest, not pouring out all of the savings in one go, helping new borrowers build a credit score, and insight into spending to help consumers navigate rising prices.

Two-thirds of people globally used a buy now, pay later service to make a purchase this year, up from 51% in 2021. In the US, the number jumped from 47% in 2021 to 67% in 2022. BNPL is beginning to outpace the popularity of credit cards among users, as more than one in three people say they used the payment option more than credit cards.  

Globally, consumers are keeping an eye out for BNPL innovation and are keen on seeing the offer string out to larger purchases such as cars (28%), home renovation (27%), dental work (26%), and travel bookings (22%).

While increased BNPL spending could be a windfall for merchants, it may come at a cost to consumers. US regulators worry costs can quickly pile up, leaving shoppers with mounting debt. The CFPB's recent report on the BNPL sector found that there were inconsistent consumer protections compared with credit cards, and that the sector "is engineered to encourage consumers to purchase more and borrow more."

In light of this, regulators have flashed signals to rein in the BNPL sector, concerned that the service could negatively impact consumers’ financial health in the long run. The bureau will issue guidance expected to fall in line with credit card companies’ standards, followed by appropriate supervisory examinations and plans to use BNPL loans in the calculation of consumers' credit scores in the future.