Debt is a divisive topic. Doubly so since the financial crisis, and especially in markets hit hardest by it, such as the UK. Can borrowing, as a positive and manageable concept, be saved? Can we celebrate credit while stepping away from the spectre of debt? I believe so. I recently contributed my thoughts to an article in The Independenton point of sale credit and whether this represents a fresh route to debt for consumers or a refreshing alternative to traditional models of lending.
Millennials, in particular, have been turned off traditional credit and store cards for fear of spiralling debt. The credit card market is stagnating, while debit cards are growing year on year. Even consumers still using credit cards are typically paying them off in full every month. These ‘full payers’ are simply deferring full payment for four weeks. In fact, 80% of all UK credit card spending is paid off in full each month. That’s roughly £48.4 billion a year of deferred payments.
Consumers are better educated and wiser than everabout the pitfalls of debt and their behavioural trends back this up. Sure, many are still using the traditional methods, albeit ‘hacking’ them to work in the way they wish to spend. Fortunately, this jury-rigged approach is no longer their only option.
Short-term, interest free credit is becoming more ubiquitous.It provides savvy, budget-conscious consumerswith one-off borrowing options. This want was a primary driver for us when establishing Laybuy, where consumers pay one sixth upfront with the remaining payments spread over 5 weeks. We spotted an opportunity to help consumers step away from risky credit card deferment behaviours and access transparent and manageable credit; taking the stress out of borrowing thanks to a more responsible service with less risk. We also saw the opportunity for the retailers who had been relying on traditional payment methods in an increasingly competitive landscape.
For these retailers battling through today’s troubled waters, promoting a store credit card to someone in their twenties isn’t likely to result in a positive action, and could turn them away from a brand altogether. The industry can’t ignore the negative association of traditional debt; consumers certainly won’t.
Instead, we can collectively change the way we transact altogether; providing shoppers with alternative ways to pay, that match the cadence of their budgeting. Recent research through Censuswide found that the majority of UK consumers budget on a weekly basis, despite many being paid on a monthly basis. Whilst also giving them control and reducing any risk of snowballing debts, proving a weekly payment option also helps engage millennials and increase their brand loyalty.
By building a business model that doesn’t rely on (or even consider) interest as a revenue stream, we win when consumers and retailers win, never when someone else loses. These new, more transparent relationships are giving shoppers confidence and greater control of spending limits; a brave new world that can, and is, being embraced by wise consumers.
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