online holiday shopping

This season has been largely met with predictions of consumer optimism, with various reports forecasting healthy spending that could even see an increase from recent years. But similar surveys have also reported consumers expect holiday spending will more than likely result in debt.

To meet this challenge, consumers are turning to alternative payment platforms; better planning their holiday shopping and spending, and seeking deals and various incentives from credit card companies and retailers.

According to a recent survey by Credit Karma, Americans feel that debt is unavoidable during the holidays, with 81 percent of respondents saying buying gifts for family was the number-one reason for holiday debt. Though even given expectations of debt, Credit Karma found that Americans still plan to spend.

To best manage spending over the holidays, Dana Marineau, vice president and financial advocate at Credit Karma, advises consumers to “make a plan” and “set expectations.” Further, “Credit Karma found that among those who plan to make changes to their holiday spending habits, 28 percent of those surveyed plan to save money this holiday season by agreeing upon a set budget with those they will exchange gifts with.”

Additionally, Marineau said consumers can look for deals year-round, “Holiday sales are no longer just on Black Friday, sales start after Halloween. Take advantage of the early sales and do your shopping gradually so the spending doesn’t all hit at once.”

Retailers also offer incentives to shop that go beyond specialty deals and sales, like those seen on Black Friday and Cyber Monday, many through store cards and loyalty memberships. Stores such as Nordstrom and Saks Fifth Avenue which offer free shipping and returns to all shoppers, and Bloomingdale’s has an option for free two-day shipping. Additionally, what can be seen across many retailers is an opportunity to earn rewards when shopping.

In a separate report by WalletHub many consumers surveyed revealed they are still burdened by holiday debt from last year and plan to spend less this holiday season. WalletHub’s chief executive officer Odysseas Papadimitriou described the trend as “worrisome.” Though when asked, Papadimitriou said there were opportunities to consider for consumers to get a new credit card specifically for the holiday season.

“Taking advantage of the benefits of a store card can be a great way to expand your holiday savings if you’re able to pay off your card in full each month,” Marineau . “Though the rewards can be tempting, store cards frequently come with high-interest rates, many with APRs of more than 25 percent, and often have a low credit limit, which could affect your credit utilization rate.”

Store cards, which often give the cardholder initial incentives, sometimes in the form of a 15 to 20 percent discount during the first days of holding the card, also offer rewards programs. It is a system that rewards consumers for loyalty, giving those who shop more, higher benefits.

Nordstrom, Bloomingdale’s and Sephora all operate on a similar store card and free membership programs, though all have aspects that are unique. Nordstrom’s “The Nordy Club” operates on a points system where shoppers are able to trade points for credit in the store and additionally lets members earn status based on spend — meaning the higher your status, the more rewards you receive. Similarly, Bloomingdale’s operates a loyalist membership program where free members and store cardholders earn points for store rewards. While both memberships are similar, Bloomingdale’s does offer an incentive to new cardmembers of 15 percent off all purchases during the first two days.

Sephora has also utilized both a store card and free loyalty membership programs. Sephora’s free membership mirrors other retailer’s points for shopping program, operating on a tiered system, which allows consumers who spend more to see increased benefits. Unlike Bloomingdale’s and Nordstrom, the points cannot be used to redeem open credit to purchase but can be used to trade for select products and sets. Free shipping is available to members with “Rouge” status.

Traditional credit card companies also offer rewards options.

In a new survey commissioned by American Express Membership Rewards, 86 percent of Americans polled said they would not use credit card rewards for holiday shopping this year, exposing a mass amount of untapped potential. While the company found that 51 percent of respondents get gift cards during the holiday season to either give as gifts or to help buy gifts, only 36 percent say they have used credit card rewards to do so.

American Express points out that credit card membership rewards programs allow users to redeem points for gift cards to retailers including Williams Sonoma and Target, or for an American Express gift card. Further, while 73 percent of Americans told the company they are likely to donate to charity during the holiday season, 50 percent were not aware that credit card rewards points can be used to do so.

Meanwhile, a newcomer to the world of consumer finance are fintech companies that offer various payment options. Companies such as Afterpay, Klarna, QuadPay and Splitit, among others, allow consumers to shop with partnering retailers and brands via a “buy now, pay later” structure where the shopper is able to pay in installments without interest.

Though fintech solutions may seem similar, each has unique advantages and processes.

“Fintech services can be a great tool for consumers looking to finance a purchase, particularly those that are a bit more costly,” Marineau said, adding that consumers should make sure they understand the terms of the agreement and that the payment options fit within their budget.

Zach Aron, U.S. banking and capital markets payments leader at Deloitte Consulting LLP, said consumers are looking at alternative payment methods “due to ease of enrollment, more flexible payment terms, [like installments or buy now and pay later], and delivered through form factors such as mobile. These are aligned well to how certain demographics view spending and saving and are also delivered in an appropriate context.”

Fintech solution Afterpay, which entered the U.S. market less than two years ago, boasted more than 9,000 retail and brand partnerships at the WWD Digital Forum in September. Through the platform, consumers are able to purchase items with a payment plan which prompts four installments without interest to the user. Shoppers can also choose to shop from Afterpay’s web site, which lists partnering retailers utilizing the Afterpay option. Afterpay says Millennials and Gen Z are the majority of the program’s users, making up 80 percent of total users.

Top retailers on Afterpay’s marketplace include Anthropologie, Urban Outfitters, Madewell, Levis and Ulta, among others. Afterpay’s web site also has a “shop holiday offers” page where users are able to see retailers offering promotions or sales, where Afterpay financing is available.

Afterpay holiday stats

Holiday findings from Afterpay.  Courtesy Image.

Klarna, the now largest fintech payment firm in Europe, similarly offers consumers the option to buy now and pay in four interest-free installments. The company also touts a 68 percent increase in average order value from shoppers using its payment option. Top retailers on Klarna’s marketplace include H&M, Simon Miller, The Webster and Frame, among others.

QuadPay, while offering consumers a similar interest-free, four installments payment plan to shop on partnering retailers also offers shoppers the ability to use a QuadPay Visa card at any online retailer and in-store where Apple Pay or Google Wallet are accepted. Partnering retailers include Fashion Nova, Ugg, La Ligne, Staud and Herbivore.

Splitit’s installment payments offer a unique solution that extends to credit cards. The provider operates within a user’s existing credit limit, not contributing to consumer debt. So unlike payment solutions that offer buy now, pay later, Splitit is enabled to put a hold on a consumer’s credit card for the full amount of purchase. The company says the hold will prevent the user from exceeding set spending limits and overspending. The company has a 0 percent interest to the consumer and touts a 12 percent increase in sales with an 11 percent decrease in cart abandonment. Splitit has partnerships with retailers including Fashionette, Vestiaire and Shopyte, among others.

“In general, new payment options have been geared to solving a shopping experience as opposed to a buying experience,” Aron said. “As a result, they are developed to work in the context of shopping, this includes using mobile form factors that are now driving a more omnichannel shopping experience, being able to drive follow-on payments and, in some cases, being ‘invisible’ and imbedded in the overall purchase. By making buying more frictionless, it enhances the overall shopping experience.”

In a new consumer survey by Ibotta, which detailed mobile payment solutions including Apple Pay, Google Pay, Pay With Ibotta, Samsung Pay, Starbucks Rewards and Zelle, among others, two-thirds of shoppers reported they plan to use mobile payments for holiday shopping. “The way in which consumers shop this holiday season will be drastically different than how they’ve shopped in the past, signaling a major milestone in user adoption, comfort, and trust of mobile payments,” said Bryan Leach, founder and chief executive officer of Ibotta.

The survey additionally found that while 60 percent of respondents were using three or more rewards or payment apps, and 15 percent reported having eight or more, not all consumers were comfortable with the abundance of options. Overall, consumers reported being motivated to use mobile payment methods given opportunities for rewards, rebates and cashback offers.

Earlier this week, PayPal revealed plans to buy shopping and rewards platform Honey with the goal to “help consumers make informed choices earlier on and give merchants a way to bolster customer relationships, drive more sales and personalize offers.

For More WWD Business News:

5 Things Retailers Should Remember as They Ready for Holiday

Fashion Fintech Is on Fire

Holiday Shipping: What to Expect This Shopping Season

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