The retail loyalty squeeze

Summary: Retailers face a compounding problem: customer acquisition costs have risen sharply while loyalty program retention has declined. The solution emerging in embedded finance is a single flexible credential (one card that adapts across debit, credit, and installments), allowing consumers to choose their payment method at checkout without switching cards. This approach helps seal four common revenue leaks in retail: loyalty program churn, checkout abandonment, third-party data ownership, and declined credit applicants left without alternatives.

There's a quiet math problem sitting inside most retail businesses right now, and almost no one is saying it out loud.

Margins are thinner, squeezed by inflation, wages, and supply chain costs you can't fully pass along without losing the sale. So every acquired customer has to work harder to justify what you paid to get them. And the program built to make that customer worth the investment, the loyalty program, the card, the points, is the exact thing quietly failing to hold them.

That's the squeeze. Higher cost to get them in. Lower ability to keep them. And a widening gap in the middle that most retailers try to close by doing more of what already stopped working.

Look closely and the squeeze isn't one problem. It's four, and they compound.

The strategic logic of a loyalty program is simple: spend to acquire, then earn it back over a long, sticky relationship. That only holds if the relationship is actually sticky. Increasingly, it isn't.

Retail sees more program-switching than any other category. Consumers now belong to
more than a dozen programs each, with engagement sliding for years, and 81% of Gen Z and Millennials switched brands in the past year. The instinct when the numbers dip is to add: another tier, a richer welcome bonus, a double-points weekend. But adding perks to a free program hasn't reversed the decline, because a free program costs nothing to leave. You can always be outdone by the retailer down the street running the same playbook with a slightly bigger number.

The moat you're funding isn't holding water. You're paying more than ever to fill it, and it drains from the bottom.

Here's the part that stings. Even when you win the expensive battle, the customer is on your site with an item in the cart, you lose a staggering share of them at the final step. Roughly 70% of e-commerce carts are abandoned, and payment friction is one of the biggest culprits. The customer's preferred way to pay isn't offered. The card won't stretch to cover the purchase. The flow asks for one more thing than they're willing to give.

Read that in acquisition terms. You paid rising customer acquisition costs (CAC) to get someone all the way to the checkout screen, the highest-intent moment short of the sale itself, and then lost them over how they pay, revenue you already earned walking out the door at the threshold.

Consumers are more deliberate about payment than about almost anything else. 85% weigh multiple factors before choosing how to pay for a given transaction, and 59% used both debit and credit within a single 90-day window, switching by context (Marqeta 2026 State of Credit Report). When the payment experience won't flex to how they actually want to pay, they don't compromise. They leave.

To patch the checkout leak, most retailers add Buy Now, Pay Later, and for good reason: shoppers love it, and it lifts conversion and basket size. The problem isn't BNPL. It's the handoff. At the moment of purchase, the customer is passed to a separate provider and a separate interface to finish paying, and you pay a percentage per transaction for it. More than 85% of major retailers now offer BNPL at checkout, yet the experience runs on rails you don't own, so the data, the loyalty, and the relationship end up sitting with someone else. That behavior is now a daily habit customers expect everywhere, not just where a third party is bolted on, and 60% of 25-44 year olds say they want that financing inside a card they already carry rather than a separate app.

You validated the habit. You're paying for the habit. And the handoff gives the relationship away.

Now the sharpest edge of the squeeze. When a consumer applies for your card, they've done something no campaign can manufacture: raised their hand and declared themselves ready. That's peak intent.

Here's what happens to many of them. Of consumers who applied for a credit card in the past year,
45% were denied at least once. Of those denied, 63% were offered no alternative product at all, even though 60% said they'd have wanted one that helped them build toward qualifying. And this is not a lost cause: 76% of denied applicants say they'd come back and undergo another credit check to upgrade when their profile is ready.

So you spent rising CAC to generate the strongest signal a customer can send, the credit decision came back "no," and the standard response was silence, or a generic re-marketing email days later when the moment had passed. This is also where your fastest-growing segment lives. Gen Z is retail's fastest-growing spend segment and 50% less likely to carry a brand card, not because they're uninterested in credit, but because their profile often isn't ready yet. A motivated, self-identified, willing-to-return audience, handed nothing at the exact moment they were most ready to commit.

It's tempting to treat these as four separate issues and assign each to a different team. But they're the same problem wearing four outfits.

The underlying issue is that most retail programs are static in a world where customer behavior is anything but. Consumers don't hold one payment method and stick with it. They assemble a portfolio of debit, credit, and BNPL and move between them based on the purchase, the month, and where they are in life.

79% of BNPL users keep using BNPL even when they have a credit card, because the two do different jobs. A static, single-mode program can't meet a customer who's this fluid, so it loses them at enrollment, at checkout, at the BNPL screen, and at the credit decision, over and over, at the exact moments that were supposed to be wins.

"Modernize the program" has quietly become the real mandate. Not another perk tier. Not out-spending on acquisition to refill a leaking moat. Rethinking the payment relationship itself so it flexes to how customers actually behave.

The direction that addresses all four is a single flexible credential: one card that adapts across debit, credit, and BNPL, wrapped in a co-brand program that belongs to you.

Flexible Credentials is a single payment card that lets consumers choose, at the moment of purchase, whether to pay via debit (funds from their bank account), credit (revolving line), or installments (BNPL-style financing). The cardholder doesn't need multiple cards or separate apps; the same credential dynamically routes the transaction based on their selection.

The leaking moat gets a card worth reaching for. When your card does financing and real rewards and works everywhere the customer spends, it earns top-of-wallet status. The bigger prize is share of wallet: because a single credential carries debit, credit, and installments, it captures the everyday spending that a static, single-mode card lets scatter across other cards, something close to the full wallet, which is unheard of today. That is a relationship that actually costs something to leave, and the one thing points alone never deliver.

The leaking checkout gets payment flexibility built in. A single credential that lets the customer pay their way, debit, credit, or installments, helps remove the friction that abandons carts and recovers revenue you were already losing at the final step.

The BNPL handoff comes home. A flexible credential brings installments inside your own checkout, so there's no handoff to a separate app: the experience stays yours, BNPL becomes an option on every transaction, and the data and the relationship stay with you.

The declined applicant gets a path instead of a dead end. Rather than answering peak intent with silence, a flexible program can offer a build-toward-qualifying alternative in the moment, converting the decline into the start of a relationship and reaching the Gen Z segment your credit box turns away today.

Sealing four leaks with a bigger points bonus was never going to work. Sealing them with a card that flexes to how people actually pay is a different kind of fix, and it's the one that finally addresses the squeeze instead of feeding it.