Ubiquity Drives Consumer Demand for Credit Card Installment Plans

Getting what we want — now — but paying later for it is top of consumers’ minds.

Nandan Sheth, CEO at Splitit, told Karen Webster that the ubiquity of debit and credit cards provides a natural conduit toward embracing installment plans tied to everyday purchases, and big-ticket items too.

“Installments are here to stay,” said Sheth, who added that no matter whether the installments have a 0% APR, and low fees, or if the plans do indeed carry interest rates, “attaching installments to your credit or debit card has become a very real category.”

There’s enough trouble on the horizon with holiday spending, he said, and worries over delinquency rates and performance of the more typical buy now, pay later (BNPL) loans may give merchants pause when it comes to offering BNPL to their end consumers.

“The merchants that are thoughtful,” he said, “understand that approval rates have been sinking, and they’re going to sink even further.”

Consumers, he said, live in an omnichannel world, and want an omnichannel solution wherever they make a purchase online or offline. And as Sheth noted, the combination of cards’ ubiquity and installment offerings can be relatively more attractive than, say, BNPL that’s offered only through a particular merchant or with a certain checkout method when a transaction’s being made.

Growing Embrace of Installments

The conversation came against the findings of the collaborative efforts between PYMNTS Intelligence and Splitit, detailed in the report “Installment Plans Becoming a Key Part of Shoppers’ Toolkit.”

The data found that 60% of consumers have used installment plans in the past year — and 45% have used credit card installment plans. Those rates are higher than seen with BNPL and merchant-driven installment programs.

Though there will always be a market for consumers with less-than-stellar FICO scores to embrace BNPL, card-wielding consumers, Sheth said, “like their rewards, they like the safety and the protections that the credit cards provide.” These consumers, he said, make up 75% of the U.S. population and have roughly 90% of the purchasing power driving the economy.

Most consumers are used to the methods and transparency already set up for chargebacks and billing.  And the act of transacting with a card, he said, is a simple one, second nature to most every consumer behind the billions of cards used throughout all manner of commerce. The card-based ecosystem has been around for decades, and has been tested through all manner of economic cycles.

There’s the added benefit, he said, of convenience, where using card installments sidesteps the need to originate new, and separate loans.

“And there’s the convenience of not going ‘out of band,’” Sheth said, to make purchases, as cardholders wield their existing cards that capture most of their daily spend, anyway. They know what their limits are on the credit cards; they know how much is in the bank backing the debit cards. The end result is that average basket sizes are significantly above those which might be seen with BNPL programs crafted on a merchant by merchant basis.

“We see this with larger merchants,” he said of card installments, adding that there’s a “propensity to bundle” pay later options as consumers tack on ancillary products at the (online or brick-and-mortar) register. Average order values, he said, can get a double-digit percentage point boost, more than 20%, when card installments are in the mix.

Looking to Embed Installments in the Flow

There are still some frictions to be ironed out, said Sheth. Post-purchase installments are still clunky and ideally the options should be offered in the midst of the transaction flow, before the purchase occurs.

“It’s the holy grail,” he said, adding that platforms including Splitit help streamline unlocking of installments for clients that include the card network as shoppers keep earning cash rewards as they choose the number of installments and have a measure of control over the post-purchase paybacks.

Splitit, for its part, has pacts in place with Visa and Mastercard to enable their installment solutions, acting as the “orchestration engine for the merchant community.” And in the months and years ahead, the company will “unlock” installments at merchants through acquirers, PSPs and gateways — creating a “global standard for card-attached installments.”

Sheth emphasized that card installments need to be present no matter the channel favored by consumers. He recounted the example where a luxury merchant housed through the Gem Shopping Network had average ticket sizes of several thousands of dollars — but many of the transactions were occurring through call centers. It made sense, then, to enable a pay later solution in that setting.

Consumers, of course, are looking for card installments, and the data show that roughly a quarter of buyers would switch allegiance to merchants if pay later is on offer. Younger consumers — millennials and those buying homes and starting families — are among those most interested in installments.

“Their focus is changing from splitting a $200 hoodie, to perhaps wanting installments for a new HVAC system in their home.” The consumers who may have been intimately familiar with BNPL for clothes and other discretionary goods are looking for different solutions now.

As Sheth told Webster, when it comes to card installments, there’s room to extend the options to cross-border commerce and B2B (with Pay After Deliver, a new Splitit option).

“There’s a lot of capability riding the credit card rails,” he said, “and there’s significant scope for innovation. We’re just scratching the surface.”