Store credit cards face competition from new payment apps for Black Friday shoppers

Holiday shoppers this Black Friday will often be faced with two competing offers at checkout – the traditional store credit cart and newer “buy now, pay later” apps.

Apps like Affirm and Klarna gained traction over the last year as COVID lockdowns resulted in a boom in e-commerce, and hope to build on that momentum with new Black Friday discounts. For example, Klarna will waive users’ final payment, or up to 25% of the original purchase, for any shopping done at Bed, Bath and Beyond.

Twenty-one percent of shoppers planned to use a buy now, pay later app for the holiday season, according to a survey published in October by loan marketplace LendingTree.

Twenty-nine percent of survey respondents said they planned to use store credit cards, which was the “lowest in 3 years.” For comparison, 44% of respondents told LendingTree it planned to use store credit cards the year before.

Store credit cards have been available much longer than these payments apps, and usually tempt shoppers with a large discount on your first order.

However, these store credit cards require the application process of regular credit cards, including a credit check, which may deter anyone who has had a rough year due to COVID.

They also carry variable interest rates, which can quickly override the benefit of opening it in the first place.

“If you do carry a balance, store cards are really problematic because the interest rates are sky high,” says Matt Schulz, chief credit analyst at Lending Tree.

On the other hand, buy now, pay later apps have a much more streamlined application process, usually as simple as downloading and signing up for the app. It is especially attractive to those who worry they will be rejected for a credit card.

They usually charge zero interest for a period, opting for fees on late payments or when opening the loan. Discounts are rare though, so brand-loyal customers may see more long-term benefit in a store credit.