Fintech innovators are helping shoppers get the instant gratification they crave without the instant hit on their wallet.
Consumers, especially millennials who witnessed the Great Recession’s fallout and the Gen Zers coming up in its aftermath, are more skittish than ever about taking out credit cards and falling victim to the debt trap. Preferring to purchase within their means, many consumers use debit cards for most of their needs, even costlier spending like airline tickets.
“Millennials do not want to open credit accounts because they do not trust the banks that offer them,” Affirm CEO Max Levchin said at Inturn’s Working Capital Summit in May, “because they no longer believe [the banks] have the customer’s best interest in mind.”
But sometimes people want to make their finances stretch just a bit—and now a number of financial technology upstarts are tackling this issue head on and offering options that bring affordability within reach. Affirm, for its part, offers credit financing with retail and travel partners like Rebecca Minkoff, Casper, Wayfair and Expedia on board.
“The thirst or hunger for transparency and clear pricing…was really, really strong,” Levchin said, noting that early on Affirm often accounted for between 30 percent and 40 percent of the share of wallet at its smaller merchants. Levchin, nicknamed the “consigliere” of the so-called “PayPal Mafia,” was among the payment giant’s six co-founders and served as its chief technology officer.
The approaches to creative payment alternatives are seemingly endless. Australia’s Afterpay is one startup that in four short years has turned retail payment installments—a sort of “layaway for millennials”—into a $1.5-billion business. Not a “finance” solution, CEO Nick Molnar emphasized to Sourcing Journal, Afterpay instead requires four equal payments: one on the spot, and the remainder at a two-week cadence automatically charged to the consumer’s debit or credit card.
“I think [millennials are] used to reoccurring debit cycles now and subscriptions, so they just want simplicity,” the 28-year-old CEO noted.
One part full-fledged credit card and one part point-of-sale financing solution, Blispay is a 2 percent cashback Visa card that consumers can use to defer payments on purchases of $199 and larger. If the balance is paid off, there’s no interest; otherwise, a 19.99% APR applies. Consumers age 18 and older who have a smartphone can apply for Blispay via mobile and if approved, can use it on the spot in a participating retailer’s store.
Transaction values for customers who finance their purchases through Blispay are on average 120 percent greater than those who do not, Nathan Decker, director of e-commerce for action sports gear and apparel retailer Evo, said in a case study. Plus, 17 percent re-use Blispay within the first 90 days of their initial purchase to buy additional items.
With headquarters in New York City, an office in London and an R&D center in Israel, Splitit uses consumer’s credit and debit cards to pay for purchases at a more manageable pace. For a $1,000 purchase, for example, Splitit would hold the full amount on the consumer’s credit card, but only require smaller interest-free monthly payments. As each payment brings the balance down, the hold drops each month until the total amount is paid off. Consumers can opt for up to 12 monthly installments, giving them flexibility in how quickly they can eliminate both the balance and the credit hold. The solution works with debit cards as well, but without the hold on the user’s funds.
When it comes to spending habits and payment preferences, millennials shouldn’t be lumped together into a single monolithic group, CEO Gil Don pointed out. The 30-and-over millennials are more likely to pay via credit than the under 30 group. Looking at the kinds of stores and sites consumers purchase from paints the picture with behavioral data. A fashion e-tailer selling millennial-friendly apparel likely will see more transactions put on debit cards than a website hawking high-ticket goods like a $1,000 mattress, Don said by way of example. In the U.K. luxury e-commerce marketplace Vestiaire Collective offers the credit-card version of Splitit and plans to expand the option for U.S.-based shoppers next year, Don noted.
Though it might seem to be a relatively new phenomenon in the U.S., retail installment payments are common in many parts of the world, including Brazil, Don added.
Counting 800 retailers in 25 countries as clients, Splitit never holds any of the shopper’s money, and Don described the firm as “completely a technology company.”
On Aug. 29, Splitit reported that it’s now offering even more ways to help consumers spread out their financial burden. Going forward, consumers can split purchases of $400 or less into three payments, sans interest, over 90 days. Splitit said the expansion of its payments options is designed to “enhance purchasing power for consumers and enable merchants to offer a wider range of payment options across channels and borders, increasing sales revenue.”