Are Point-of-Sale Loans Putting Pressure on Credit Cards?

Point of sale loans could dramatically impact the way consumers charge large purchases, according to the latest TransUnion survey results (Industry Insights Report). Additionally, the popularity of credit card rewards programs could wear down the private label card.

Point-of-sale loans provide consumers with an instant offer of credit in the form of an unsecured personal loan at checkout. It is likely that the private label card market is subsequently shrinking with a 5 ½ decline year over year between 2017 and 2018.  

Additionally, and perhaps not surprisingly, the study also showed a decline in retail brick-and-mortar shopping. In the first quarter of  2019, 120.6 million consumers had access to a private label card, down from 126.5 million from the previous year. Paul Siegfried, senior vice president and credit card business leader at TransUnion said, “As brick and mortar retailers continue to face challenges, many merchants are implementing point-of-sale financing alternatives as a potential new avenue for growth.” 

In Q4 2018, credit card originations grew 2.9% year-over-year, with the subprime risk tier showing the highest growth at 8.8%. Credit card issuers are responding to growth challenges by allowing access to more subprime consumers but doing so with a much stricter credit line. “Subprime originations grew to 2.97 million in Q4 2018, yet super prime still outpaced the subprime category with 3.65 million originations. Delinquencies, however, have remained well below recession-era levels, which indicates that lenders continue to keep their risk in-check as they pursue measured growth,” added Siegfried.

Some of the other highlights of the survey include: 

• Personal loan balances increased by 19.2% annually to $143 billion
• Super prime borrowers increased the most with an increase of 22.5 percent while subprime grew by 10%.
• The number of borrowers “seriously delinquent) was 3.47% for the first quarter.
• Auto originations grew by 1.7% in Q4 2018 year over year, with mild delinquency rates.  

“Across the consumer wallet, delinquencies have largely remained at low levels, an indication of the overall health of the consumer credit market,” said Matt Komos, vice president of research and consulting in TransUnion’s financial services business unit. “To garner more market share, we expect lenders to expand their buy box and grow their books on both ends of the credit spectrum.”