6 Reasons for More Inclusive Payment Options This Holiday Season

Consumers are cautious about holiday spending this year. Inflation and ongoing uncertainty about the economy are influencing consumer spending, even at the busiest retail time of the year. Consumers are shopping earlier, taking the time to research the best deals on the items they want, and looking for ways to stretch their budgets further. Retailers can make the most of this holiday shopping season by anticipating the payment needs of their customers.

Feeling the Financial Stress of the Holidays

Looking back on the dominant trends of the 2022 holiday season, a March 2023 consumer survey by Google revealed that "as of mid-October, shoppers globally had, on average, 21 percent of their holiday shopping complete."

One major reason why consumers have started their holiday purchasing earlier is to save money. A September 2023 Bankrate consumer survey revealed that 54 percent of Americans feel "financially burdened" by holiday shopping this year. An overwhelming majority (87 percent) of shoppers say that it's important for them to save money right now. Consumers cite rising grocery costs and inflation, with "offsetting price increases" (40 percent), "feeling financially secure" (38 percent), and simply "getting by" (38 percent) being the top reasons they're being more conservative with their holiday spending this year.

More consumers are planning to set a reasonable holiday shopping budget and research the best deals to spend their money wisely. Shopping earlier also means consumers can leverage different retail payment options that allow them to pay for gifts over time but still have their goods in time for Christmas or other gift-giving holidays.

Flexible Payment Options: Build Loyalty

Retailers must not overlook offering multiple ways for customers to make payments. Merchants can better prepare to meet the needs of their customers by providing a more comprehensive array of flexible payment options. These payment options should support both online and in-store experiences; provide an easy, fast application and approval process; and consider the different stages and financial situations of all potential customers. Retailers that show they understand their customers' unique needs have an opportunity to build loyalty and create repeat purchasers long after the holidays are over.

Beyond Credit Cards

Credit cards are still the dominant payment option for holiday shopping, with more than half of consumers planning to use them this year. However, alternative payment options are becoming more popular with consumers.

For example, buy now, pay later (BNPL) plans are gaining greater traction this holiday season, especially for big purchases. KORTX research predicts that BNPL options will grow by 18.7 percent in 2023 and reach 82.1 million users. The Bankrate consumer survey indicates that 10 percent of consumers this year will rely on BNPL payment options to help finance the holiday season.

Flexible payment options empower consumers to buy the perfect gift without breaking the bank and spread that payment into more reasonable chunks throughout the year. According to a 2022 U.S. government survey, the amount of BNPL loans has grown from $17 million in 2019 to $180 million at the end of 2021. Many shoppers will only do business with a retailer if it offers BNPL payment options.

Include Options for Credit-Challenged Customers

To service a wider market of holiday shoppers, retailers should strive to include financing options for their credit-challenged customers. Experian reports that 16 percent of all Americans have a FICO score of between 300 and 579, while 18 percent have a score of between 580 and 669. That means 34 percent of all American consumers struggle to qualify for a credit card or an in-store credit account. Meanwhile, only 1.2 percent of Americans have a perfect 850 credit score. Pay-over-time options such as lease-to-own and retail installment contracts offer the opportunity for consumers to make smaller payments that are spread out over a specific time period, making it more manageable.

For retailers, offering payment options for credit-challenged customers is important for several reasons:

1. Financial Inclusion: Providing payment options for credit-challenged individuals promotes financial inclusion, ensuring that a broader population has access to essential goods and services. This helps reduce disparities in financial access and empowers individuals who might otherwise be excluded from the traditional credit system.
2. Customer Loyalty: Businesses that are inclusive of credit-challenged consumers can build loyalty and trust among this customer segment. By accommodating their unique financial situations, companies can develop long-term relationships with these customers, potentially leading to repeat business and positive word-of-mouth recommendations.
3. Risk Mitigation: Providing alternative payment options can help businesses mitigate the risk of nonpayment or default by credit-challenged consumers. By offering structured payment plans or alternative financing arrangements, companies can reduce the likelihood of financial losses. Furthermore, by using a financing provider, the retailer is reducing the risk to itself; the provider takes on the risk instead.
4. Market Expansion: By tapping into a previously underserved market of credit-challenged consumers, businesses can expand their customer base and potentially increase their revenue.
5. Social Responsibility: Many companies view providing payment options for credit-challenged consumers as a form of corporate social responsibility. It demonstrates a commitment to social and economic equity, which can enhance a company's reputation and goodwill.
6. Competitive Advantage: Retailers that bring in a diverse mix of new payment solutions for credit-challenged consumers can gain a competitive advantage in the market. New and unique payment options can set a business apart from its competitors.

Retailers need to have payment options available for credit-challenged consumers, both in-store and online. Keep in mind that the application and approval process must be transparent so customers understand what they're applying for. Giving your credit-challenged customers more flexible options to pay over time will not only help boost sales during the holiday season, but it will also give these customers an opportunity to finance items and, in some bases, even help to rebuild their credit for the future.

To make this holiday season a win, retailers should anticipate the needs of consumers and present them with the right payment option that fits their specific needs. To accelerate the adoption of more diverse payment and financing options, retailers may consider seeking technology partners that can assist. Partnering with a fintech or financing company can ease some of the technical burden of bringing in new payment channels quickly, allowing retailers to focus on what they do best: creating great online and in-store customer experiences.

Rob Barnhart is the president of Snap Finance, a provider of fast, flexible retail payment options for consumers with less-than-perfect credit.