The year-end holidays mean big business for merchants — and big spending by consumers. The holiday season — November and December — account for 19% of annual retail sales — and for some merchants, this share is even greater.1 Consumers, meanwhile, reach deeper into their wallets for holiday purchases, spending more than at any other time of the year.
During the upcoming holiday shopping season, installment plans — such as buy now, pay later (BNPL), installment plans offered as part of general-purpose credit cards, those offered by store-branded cards and more — will play a heightened role in the consumer toolkit. Rather than simply revolving these purchases on the greater credit ledger, installment plans allow consumers to break up select purchases into a set number of payments, often with low or no interest.
Forty-one percent of shoppers expect to leverage installment plans more heavily than usual for holiday purchases, with younger consumers substantially more likely to do so. Among the shoppers who plan to increase their installment plan use during the holidays, 73% are at least somewhat likely to pass on a merchant that does not offer installment plans using their existing credit cards in favor of one that does.
These are just some of the findings in “The Role of Installment Plans in the 2023 Holiday Shopping Season.” This report examines consumers’ views on installment plans and details how they will use this payment method during the upcoming holiday season. It draws on insights from a survey of 2,572 respondents conducted from Aug. 8 to Aug. 12.
Key Findings
41% of holiday shoppers widely plan to increase their use of installment plans — with more than half of Generation Z and millennials expecting to lean more on the plans this holiday season.
Two-thirds of United States consumers say the holiday season generally creates undue financial stress, and 2023 will be no exception. Consumers will be paying greater attention to managing their finances and spending. Overall, shoppers expect to use installment plans more heavily for holiday purchases: 41% say they plan to increase usage, while 22% say they will scale back.
Younger consumers, in particular, expect to increase their use of installment plans. Fifty-seven percent of Gen Z shoppers plan to increase their use of installment plans during the holiday shopping season, and 54% of bridge millennials and 53% of millennials say the same. The corresponding shares are much lower with older generations: 43% of Generation X and 22% of baby boomers and seniors. Conversely, we note little variation across income groups, although consumers annually earning more than $100,000, at 43%, are somewhat more likely than others to plan to utilize installment plans more often. We attribute this to the ability of higher earners to make more purchases and their greater access to credit.
A closer look at the data reveals that the three main types of installment plans — general-purpose credit card plans, merchant-offered plans and BNPL — will likely see similar ramp-ups during the holidays. Credit card plans lead, as 56% of respondents who expect to use installment plans more during the holidays have already used this type of installment plan in the last year. This lead is narrow, as the corresponding shares for BNPL and merchant plans are not much smaller, at 54% and 47%, respectively.
Three-quarters of holiday shoppers say they will likely switch to merchants that provide an installment option using their existing credit cards.
With so many consumers expecting to leverage installment plans for their holiday shopping, merchants can boost their bottom lines by making several plan options available. Across all shoppers surveyed, 22% say they would be very or extremely likely to switch from a merchant that does not provide installment plan options using their existing credit cards to one that does. Fifty-four percent would be at least somewhat likely to do so. The impact on switching is much greater with consumers who plan to increase their use of installment plans during the holiday season: 38% would be highly likely to switch to a merchant that offers such an installment option, and 73% would be at least somewhat likely.
Even among consumers who expect to use installment plans at the same rate and not more heavily during the holidays, 44% would be at least somewhat likely to switch. Thirty-three percent of those who plan to reduce their installment plan usage during the holidays would be as likely to switch merchants for installment options.
More than three-quarters of shoppers planning to use installment plans more heavily this holiday season cite better spending management as the primary reason.
Installment plans offer several key advantages that explain their heightened popularity during the holiday shopping season when eager shoppers make some of their biggest purchases of the year. Better spend management tops this list: 74% of consumers who used installment plans cite this as a reason to use one. This share rises to 78% among installment plan users who plan to increase their use of this method during the holidays.
Convenience comes in the runner-up position, cited by 57% of all installment plan users and 63% of those who expect to ramp up their usage. Other key reasons driving consumers to use installment plans include trust in the provider, improved credit scores and rewards. Notably, just 24% of installment plan users say they use the plans because they cannot otherwise pay for purchases, with those who plan to lean more heavily on installment plans slightly higher, at 27%.
Clothing and accessories are the top type of purchase consumers will use installment plans for during the holiday season.
Shoppers commonly use installment plans for a wide range of purchases. Clothing and accessories top the list, with 40% of installment plan users paying for at least one of these purchases with an installment plan in the last year. Those anticipating increased installment plan use this holiday season are substantially more likely to have done so, at 49%, suggesting that clothing and accessories will likely be among the most heavily purchased items bought using installment plans this holiday. Groceries follow, at 34% across all installment plan users and 40% for installment plan users who expect to ramp up installment plan purchases. Home furnishings, appliances and consumer electronics round out the top five categories.
Conclusion
The holiday shopping season brings more celebrations, more purchases and larger expenses, pushing consumers to pay even more attention to how they manage their spending. Better spend management is a top reason consumers use installment plans, with the inability to pay otherwise a relatively infrequent driver. Most millennials and Gen Z shoppers, along with large shares of older consumers, plan to increase their use of installment plans during the holiday shopping season. Offering installment plans gives merchants a significant competitive advantage, especially as many shoppers will actively switch away from retailers that do not provide this option.
Methodology
“The Role of Installment Plans in the 2023 Holiday Shopping Season” is based on a survey of consumers conducted from Aug. 8 to Aug. 14 investigating consumers’ use of various types of installment plans. We collected responses from 2,572 consumers, resulting in a sample that was 51.1% female, with an average age of 47.3. Thirty-four percent of our sample held a college degree, and 39% annually earned more than $100,000.
1. Author unknown. Winter Holiday FAQs. National Retail Federation. 2021. https://nrf.com/research-insights/holiday-data-and-trends/winter-holidays/winter-holiday-faqs. Accessed October 2023.↩
