Retailers are heading into one of the most complex holiday seasons in recent memory. PwC projects holiday spending per person will fall by 5 percent this year—the steepest drop since the pandemic. Gen Z, traditionally an engine of trend-driven purchasing, is expected to reduce spending by nearly a quarter.
The Federal Reserve’s recent rate cut may provide some relief for consumers, slightly lowering borrowing costs, but uncertainty around jobs, inflation, and tariffs continues to weigh on confidence. Retailers face a cautious shopper base, making it more important than ever to leverage every operational advantage.
The urgency is driving boardroom conversations, where artificial intelligence is the hot topic. Retail leaders are experimenting with AI to manage supply chains, predict demand, and personalize marketing. But as important as those investments are, many are overlooking a more immediate, underutilized application of AI that is already embedded in every retailer’s operations: payments.
Why Payments Are Your Competitive Edge, Not Just a Utility
Every transaction is a data point. It tells you what a customer bought, when they were willing to buy it, and how they chose to pay. This is behavioral data in its purest form—signals that are far more reliable than a social media like or a digital ad impression. Yet many retailers treat payments as plumbing, outsourcing the process to providers who quietly capture and monetize this information.
Buy Now, Pay Later (BNPL) has turned payments into the new front door of commerce, using insights from millions of installment plans. This model doesn’t just facilitate affordability. BNPL platforms combine payments data with AI-powered models that predict purchasing intent, optimize offers dynamically, and strengthen consumer relationships at scale. The result: valuable shopper intelligence flows out of retailers’ ecosystems at the very moment when retailers most need it. But retailers don’t have to cede this intelligence to third parties; they can harness AI in-house to replicate this predictive intelligence, keeping behavioral insights internal and actionable for personalization, merchandising and loyalty.
The Missed Opportunity in Retail Stores
This holiday season, physical stores are under unusual pressure. Shoppers are more selective about where they go, weighing gas prices, time, and perceived value before deciding to make a trip. Every lever counts to increase conversion once a customer is in the store.
Flexible payments can play that role as a key lever for retailers searching for new ways to spur foot traffic. Pay-later options—traditionally used online—can drive in-store visits, reduce hesitation, and convert browsing into purchases. Seeing a high-ticket item accompanied by a simple, transparent monthly payment option can reduce hesitation and turn a “just browsing” moment into a sale. For retailers managing large inventories and expensive seasonal assortments, this could be the difference between hitting or missing end-of-year targets.
Convenience also matters. Self-checkout stations that accept flexible payment methods, location-based promotions that tie into mobile wallets, and the ability to reserve online and complete the transaction in person all reduce friction. These practical, AI-informed tools may not be glamorous compared to robotics or flashy campaigns, but in the eyes of a customer making a decision on a tight budget, they can be the difference between walking out empty-handed and making a purchase.
Trust Is the Real Currency
Consumers are financially stretched. Even with the Fed’s rate cut, households remain cautious as debt is rising, and the headlines about tariffs and inflation reinforce a sense of uncertainty. In this environment, the credibility and fairness of payment options matter more than ever. Given this context, the way retailers present payments sends a powerful message. Clear, transparent, low- or no-fee pay-over-time options signal fairness. They tell the customer: “We want you to buy from us today, and we want you to feel good about buying from us again tomorrow.”
This kind of trust-building is hard to replicate through discounts alone. Promotions may bring a shopper into the store once, but if they feel misled by hidden fees or unclear payment terms, they are unlikely to return. By contrast, when the checkout process itself creates confidence, retailers strengthen loyalty that lasts well beyond a single holiday season.
What Retail Leaders Should Do Now
Retailers don’t have the luxury of waiting until next year to rethink their payment strategies. Immediate, practical steps include:
- Highlight affordability in-store. Make flexible payment options visible through signage, associate training, and digital prompts at checkout. Don’t leave it to the fine print.
- Control the data relationship. Work with payment partners to retain access to behavioral insights, using them to drive personalization and loyalty.
- Prioritize transparency. In a regulatory environment that is watching BNPL closely, clear and predictable terms are not just ethical; they are a competitive advantage.
- Integrate payments into personalization. Use payment preferences to segment customers and tailor offers. For example, a shopper who frequently uses installments on premium products may be highly receptive to early access events or loyalty upgrades.
- Pilot quickly. Small-scale tests in select stores can show the conversion and basket-size impact of in-store payment flexibility, building a case for broader rollout.
Looking Beyond the Holidays
The temptation in a difficult season is to lean heavily on discounting. But discounting buys transactions. Payments, handled strategically, buy customers.
By reframing payments as both a conversion tool and a source of behavioral intelligence, retailers can protect margins, capture market share, and build lasting loyalty, even in a holiday season defined by economic pressure.
AI is reshaping retail, but one of its immediate and most measurable applications is already at checkout. By combining behavioral intelligence from payments with AI-driven personalization, retailers can optimize conversion, strengthen loyalty and protect margins—ensuring that this holiday season and beyond, they are not just surviving but defining the future of commerce.