If you’ve been doing some shopping online lately, as many American consumers did during the pandemic to avoid shopping in person (and maybe even just to pass the time while in quarantine), you may have noticed a higher recurrence of deals. . that promote interest. Free installment payments.
Klarna, QuadPay, Affirm, Sezzle – These are just a few of the most popular bank providers that fund installment payment plans for ecommerce merchants. And as online shopping continues to increase and consumers seek more ways to save thanks to COVID-19, “buy now, pay later” (BNPL) services have become more popular.
This week, PayPal will introduce a new BNPL product in the United States, called “Pay in 4,” an interest-free installment payment plan. Consumers who opt for the plan can make a purchase and return the money to the merchant in four interest-free installments, between $ 30 and $ 600, over a six-week period.
“Retailers are always looking for new, reliable ways to increase sales without incurring additional risk or cost,” says Doug Bland, PayPal’s senior vice president of global credit. “The COVID-19 pandemic has accelerated the challenges they face, especially as we approach the holiday season. Similarly, consumers are looking for more flexible and versatile forms of payment, especially online. “
Buy now, pay later is not a new concept, says Mark A. Cohen, director of retail studies at Columbia University School of Business, stressing that the practice has been the underlying foundation of consumer credit since World War II. World. and fueled the rise of the American middle class in the 20th century.
While the foundation for BNPL’s services has been in place for decades, a sudden ubiquity is almost to be expected given the abruptness of the recent economic recession. As the U.S. unemployment rate hit 10.2% in July (down from a peak of 14.7% in the spring), Cohen speculates that many consumers amid the pandemic have been under pressure. max out your credit cards to stay afloat. At the same time, credit card issuers, in turn, have likely lowered credit limits for many customers, as they have become much less creditworthy. Retailers, who also suffer greatly because consumer spending has been soft, can respond here by offering interest-free BNPL services (as long as the customer pays within the prescribed period) to induce customers to buy now, not later.
“It enables shoppers, especially younger ones, to spend with some urgency, rather than waiting or not spending at all,” says Wendy Liebmann, CEO of consultancy WSL Strategic Retail. “That’s an advantage for categories like clothing, where in-and-out trends mean there is some urgency to buy. Waiting may not be an option, at least from an emotional point of view. “
The payback
Pay in 4 will be included in the merchant’s existing PayPal price, so merchants will pay no additional fees to enable it for customers, and PayPal assumes the credit risk. Retailers are paid in advance and consumers pay no fees or interest if payments are made on time. Meanwhile, payments are made automatically and deducted from virtual wallets. Pay in 4 will also appear in customers’ PayPal wallets, so they can manage their payments in the PayPal app.
“We are continuously monitoring the macroeconomic environment and the implications that COVID has had. We are committed to providing our clients with a variety of flexible financing options during this time, which is why we are launching new products like Pay in 4, ”says Bland.
With more than 300 million consumer and merchant accounts in more than 200 markets, PayPal offers several financing options in addition to Pay in 4. PayPal Credit, a reusable line of credit with several built-in promotional offers, such as six months of special financing and Easy Payments, is available in the US and UK. PayPal also offers PayPal Ratenzahlung and Paiement in 4X (installment products in the German and French markets) and Pay After Delivery, a buy now offer, pay later in Australia, Canada, France, Germany and Spain. , the Netherlands and the UK Pay in 4 is scheduled to be available to consumers on qualifying purchases in Q4 2020.
The rapid growth and improvement of fintech brands over the past decade has expanded BNPL’s market for services, says Gerard Griffin, CEO and founder of financial services and salary access firm AnyDay, by accelerating the underwriting process ( now instant at time of purchase). where previously it required manual pre-approval) to expand and streamline distribution (merchants can offer services to customers through the existing business processor rather than building capacity themselves or negotiating a deal with a local bank).
Griffin suggests that interest-free installment payment plans for online purchases are particularly popular with millennials, who may be cautious about piling up credit card debt, as many of them entered the workforce in the midst of the Great Recession.
As clients continue to seek different financing options, Bland expects the upward trend in payment schemes to continue to grow. “As online shopping increases, consumers are looking for choice and flexibility, including the ability to pay over time,” he says. “Merchants will continue to require diverse and innovative payment options for customers.”
