Splitit CEO: Card-Linked Installments Unlock $3 Trillion of Consumer Spending Power

This year’s payment options are wider than last year’s.

The PYMNTS Intelligence report “Maximizing Holiday Value: The Strategic Value of Early Pay Later Visibility,” created in collaboration with Splitit, found that consumers prefer merchants that offer the option to pay over time. They also favor the ability to break payments into predictable timeframes in a bid to budget responsibly while still affording more expensive purchases around the holidays.

The report revealed that 43% of consumers said the availability of their preferred financing option strongly influences their choice of retailer. And 76% of consumers choose to use pay-over-time options before making a purchase.

Splitit CEO Nandan Sheth told Karen Webster in an interview, “there is no doubt that pay later, or buy now, pay later [BNPL] or installments are now habits with U.S. consumers — and it wasn’t there five or 10 years ago.”

However, merchants are quickly coming to understand that presenting consumers with complex pay-over-time options simply sows confusion, and simplicity is key, he said.

“The consumer is loyal to the [BNPL] provider and is not necessarily loyal to the merchant,” Sheth said of this unintended consequence.

Unless the merchant embraces a white-label solution, the lifetime value of the consumer winds up degrading over time because the customer is receiving offers that are curated for their own spending patterns on a given BNPL platform, he said.

In the meantime, merchants are struggling, he said. Margins are razor-thin, and they want to maximize sales made in stores and not just online.

“They need to understand that there are different cohorts [of customers], and that those cohorts value different types of pay-later solutions,” Sheth said.

If merchants get it right, there are two benefits to be had. The PYMNTS Intelligence/Splitit data indicated that 27% of the consumers who looked for pay-later options before they shopped bought more at checkout — and the ticket sizes grew, too.

But the pay-later option needs to surface at the right time, Sheth said.

“The notion of an embedded financing solution has shifted and moved away from just the checkout,” he told Webster.

One way to keep things simple and incentivize consumers to buy lies in giving them the ability to pay with installments on existing vehicles where they already have credit — namely, their credit cards.

There’s $3 trillion of thus-far-unused credit, which can be unlocked through card-linked installments, Sheth said. Splitit, which allows customers to divvy up the cost of a transaction into interest-free installments on existing cards, saw its volumes grow 50% year on year. Earlier in 2024, Splitit debuted FI-PayLater, which enables financial institutions (FIs) to offer BNPL at the point of sale.

“Think about the POS experience where you are able to tap your card, pick the installment, agree to the terms and conditions and walk out — rather than holding up the line where you’re registering for a new credit line,” he said.

In doing so, the option helps solve pain points that traditional BNPL models have had at the brick-and-mortar POS.

One large merchant saw repeat purchases soar 27% with the enablement of card-linked installments at the POS, he said. Splitit has an SDK embedded with Ingenico into its Android terminals and is working with other POS providers, too.

“Our assumption is that consumers are not going to change their habits, so [choosing the card-linked offers] should be as simple as tapping your card at the terminal,” Sheth said. “We’ve already tested this; it’s built, and we are scaling it.”

The Advantages

“If you stack up the card-linked installments versus new [BNPL] loan origination, the consumer already has access to credit,” Sheth said. “They usually know how much credit they have. They’re dealing with a trusted provider. And they have an affinity for the points that they earn and for the consumer protection, where doing a refund is simple.”

A new BNPL customer, conversely, must be underwritten, must register for the service and still doesn’t know what the result will be — all stumbling blocks in the in-store setting. There’s still a place for more traditional BNPL; the card-linked options are extended to relatively credit-rich consumers who are equating the installments with the merchants.

The more progressive merchants are embracing an embedded financing orchestration layer in eCommerce settings, which uses signals fed to the engine by the merchant to drive financing options and all the way through to checkout, he said.

“We’re using AI for personalization,” Sheth said.

As he told Webster, embedding the issuers’ installments deep into commerce experiences “fits with the merchant’s brand, with the merchant’s strategy and their consumer base — and drives a lot of value … it’s not just about driving the sale for today but ensuring that the customer comes back to your brand.”