The relatively new point-of-sale loans — available at checkout — could be luring customers away from using retail cards. Find out how this game changer works and how it could shake up the private label card industry.
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Point-of-sale loans — those that give borrowers the option to instantly get an unsecured personal loan when they check out — will likely change how people pay for big-ticket items, according to a new TransUnion report.
Combined with the popularity of credit card rewards programs, point-of-sale loans could shake up the market for retail store cards.
A relatively new phenomenon, point-of-sale loans give customers immediate access to an unsecured loan when they check out.
Now, consumers are shying away from using private label cards, even for large purchases — instead, they are more likely to use point-of-sale financing or a bank-issued card, TransUnion said in its Q1 2019 Industry Insights Report.
Private label cards on the decline
Between Q4 2017 and Q4 2018, private label card usage dropped by 5.5 percent, marking their ninth straight year of decline.
First, online shopping factored into the decrease of private label card usage, and now point-of-sale loans are further driving consumers away from them.
In fact, 120.6 million consumers had private label cards as of Q1 2019, compared with 126.5 in Q1 2018, while consumer access to bank-issued card jumped to 179.5 million from 174.9 million during the same time period.
“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,” said Paul Siegfried, senior vice president and credit card business leader at TransUnion, in a press release.
“In addition, consumers are increasingly opting to cash in on their preferred credit card reward program rather than apply for a new private label card,” he added.
In addition to the availability of point-of-sale loans, consumers might be shying away from private label cards because their average interest rates tend to be higher than bank-issued cards — with some retail card APRs as high as 30 percent.
The personal loan industry is booming
In Q1 2019, the personal loan industry grew 19.2 percent year over year, reaching an all-time high of $143 billion, according to TransUnion.
As of Q1 2015, personal loan balances equaled $72 billion — by Q1 2019, they had almost doubled.
The industry grew across all risk tiers:
- The super prime borrower segment experienced the biggest origination growth, showing an increase of 22.5 percent year-over-year, compared to 19.5 percent over the same time frame last year.
- The subprime and near prime borrower segment grew, too, although more modestly at 10 percent and 6.4 percent, respectively.
- The seriously delinquent borrower segment, however, experienced its all-time lowest growth for Q1 at 3.47 percent.
“Personal loans remain one of the highest growth areas of consumer credit, with originations increasing 10 percent in the fourth quarter and balances by 19 percent in the first quarter,” said Liz Pagel, TransUnion senior vice president and consumer lending business leader, in a press release.
As consumers use personal loans more for financing home improvements and consolidating debts, the origination and balance growth leaders are super prime and prime plus borrowers, she pointed out.
See related: What is a prime vs. subprime credit score?