What an influx of holiday borrowers means for payment providers

• More holiday borrowers might lead to mixed results for payment providers.
• Thirty-six percent of US consumers took on debt this holiday season—but only about half of them had planned to.
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The data: About 36% of US consumers incurred debt during the 2021 holiday season, averaging $1,249, per a LendingTree survey.

• Although the percentage of holiday borrowers rose from 31% in 2020, the average debt load decreased 10%.
• More holiday borrowers put their debt on credit cards (62%) than on any other loan product.
• Nearly 40% of US consumers used buy now, pay later (BNPL), up from 37% in 2020.

What this means: Consumers had a greater risk appetite for spending compared with the previous holiday season.

In 2020, consumers may have been more wary of taking on credit card debt given the greater uncertainty regarding the pandemic: COVID-19 vaccines weren’t widely available yet, and many consumers still had stimulus funds and built-up savings at their disposal.

Although this past holiday season also came with pandemic-related uncertainties, spending remained strong: We forecast that US 2021 holiday retail sales would grow 9% YoY and hit $1.147 trillion.

What’s the catch? Greater risk appetite could be a double-edged sword for payment providers.

Credit card issuers could benefit from more holiday spenders—but borrower profiles could be critical to repayment. High earners (those making more than $100,000) who took on debt were most likely to plan on financing holiday purchases, but low earners (people making less than $35,000) were least likely to plan the debt they accrued, per LendingTree. Low earners who didn’t plan to take on debt may struggle to pay off their credit card balances—potentially increasing the risk of defaults, which could hurt issuers.

The rise in holiday BNPL users is good news for providers, but it may attract greater scrutiny from regulators. In late December, the Consumer Financial Protection Bureau opened an inquiry into five major BNPL providers to determine the risks and benefits of their products. In its statement, the consumer watchdog cited BNPL’s ascendant popularity in the last year and said debt accumulation would be one of the risks it investigates. The uptick in holiday BNPL use might fuel pushes to regulate the space in 2022.

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