Two-thirds of Brits have used or plan to use retail credit during the Christmas season. Moneyhub’s Christmas Retail Credit Report reveals that retail credit users spend an average of £1,012.55 over the holidays, with £759.71—nearly three-quarters—financed through retail credit. It also highlights how Open Banking can help lenders and retailers better serve customers and manage lending risks.

The report also uncovered the challenge many consumers face with using retail credit at Christmas, with 64% of people struggling to repay it, suggesting that many enter the New Year burdened by new debt. Furthermore, nearly a third (28%) of credit-using Brits have fallen into collections or arrears on purchases made for Christmas. To meet repayment obligations in the New Year, over half (53%) of those who struggled with repayments have cut back on spending, 24% take on extra work, and 16% sell items. Retail credit includes credit offered by retailers or banks that allows consumers to purchase items and pay for them later through a store credit card, buy-now-pay-later plans, or instalment payment options.

“For many people, the excitement of holiday spending can quickly become the stress of managing repayments in the New Year,” said Suzy Homewood, Managing Director of Decisioning at Moneyhub. "New regulations such as the FCA's Consumer Duty, and the upcoming Buy-now, Pay-later rules, have made it clear to firms that they need to do more to understand their customers financial situation, not just at application, but throughout the term of their loan"

A better way with Open Banking

Lenders face a significant challenge in balancing consumer safety with providing satisfying access to retail credit. This is often complicated by the limitations of financial scoring. While traditional credit checks - widely used across the industry - have been effective historically, they are becoming outdated, overly simplistic, and unfair to many as based on bias and averages. These checks often lack the granular, real-time insights into income and expenses that lenders need to assess customers fairly. To lend responsibly and sustainably, it’s essential for lenders to adopt more detailed and up-to-date data analysis methods.

The good news is that since 2018, accessing customer's financial data has been dramatically simplified. The arrival of Open Banking rules means that consumers can easily grant access to licenced providers to view their financial data. Regulated by the FCA, Open Banking enables authorised organisations to access customers’ transaction data from banks, building societies, and financial institutions to understand their financial situation.

Suzy continued: “Customers no longer want to be treated as a cohort, expecting instead for decisions to be made ‘about me,’ rather than “people like me.’ Open Banking provides data that can create detailed insights into an individual’s real-time income and spending. This enables lenders to evaluate customers more fairly as individuals, ensuring that those who can repay have access to credit, while also protecting vulnerable customers from falling into debt.”

Other findings from The Christmas Retail Credit Report include:

●        Generational Divide: Younger shoppers aged 18 to 24 are struggling more than older generations to pay off their credit card balances incurred during Christmas. While nearly half (43%) of those aged 65 and older manage to pay off their retail credit within one month, this figure drops significantly to only 15% for the 18 to 24 age group.

●        Credit Confusion: Nearly half (46%) of UK shoppers find the process that lenders use to determine retail credit confusing. Two-thirds of respondents (66%) wish to better understand how lenders decide to approve or decline retail credit applications.

●        Documentation Demanded: Bank statements (37%), salary slips (28%), summary of spending (15%), and statements from savings accounts (13%) are all being asked for when consumers apply for retail credit. Those who have struggled with repayments were also found to be twice as likely to be asked for salary slips as those who haven’t.

Suzy concluded: “Open Banking is not just good news for lenders either. By elevating customer experience and refining credit assessments, the use of Open Banking helps retailers foster stronger brand loyalty. When lenders and retailers work together to offer a more personalised approach to credit decisions, they not only elevate the shopping experience and reduce lending risks but also help retailers meet consumer demand safely.”