Why Installment Plans Aren’t Just for Millennials Anymore

Madeleine Streets

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When pay-through-installment services began barreling through retail last year, they dramatically impacted the credit card market. But the latest evolution of payment alternatives could change the way consumers — and companies — pay for goods even more.

The most successful payment service firms offer similar promises to consumers: Pay 25% upfront for purchases, receive the item and then pay the balance over three additional, interest-free installments. But such sameness among top companies has created confusion for consumers — they either have to use the service their favorite retailer has partnered with or none at all. It also forces shoppers to keep track of and make payments toward multiple accounts.

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Similarly, retailers have had to either partner with various companies or forego the large section of the market that uses their payments service’s competitors.

QuadPay is tackling that problem with its newest product: QuadPay Visa Card. Like a debit card, it can be used at any online retailer — not just ones that partner with QuadPay — and at any store that accepts Apple Pay or Google Wallet. This enables consumers to divide all of their purchases into four installments, with a flat $1 fee per installment at any non-participating retailer.

“While we have a large selection of sites that consumers can shop for free, customers pay a small premium for the convenience of shopping anywhere they want with QuadPay,” said David Sykes, COO at QuadPay. “Banks charge $3 just to withdraw money from an ATM. We provide far more than this for a similar price.”

The company, like its competitors, derives most of its revenue from charging merchants a percentage of each purchase made through QuadPay; the customer fee is a way to recoup this. In exchange, consumers who use a single service only have one account to monitor and are able to build a more robust payment history, unlocking higher spending limits in the process.

The Visa Card model also serves as a preview of QuadPay’s benefits for merchants who are not yet retail partners. QuadPay executives believe that once retailers see the traffic driven by an installments option, they will want to sign up.

The retailer can then use QuadPay’s branding on their site, embed the payment option on product pages and be promoted within QuadPay’s mobile app, which helps consumers find other places to shop and drives mobile sales. According to QuadPay, its retail partners see an average order value increase of at least 20%.

“When we show retailers that transactions are already being processed through their online and brick-and-mortar stores with QuadPay, it reinforces the value proposition we’re bringing to the table,” said Sykes.

A year after inception, the value of installment payment services has been recognized by many consumers and retailers, but has been largely limited to that B2C market. Now businesses in the B2B space will also be able to utilize the pay-by-installment system through Splitit’s Business solution.

“The $120 trillion B2B payments market has suffered from a lack of innovation for decades,” said Gil Don, co-founder and CEO at Splitit. “Splitit Business Payments addresses long-standing inefficiencies and friction in the way small-to-medium size buyers and sellers conduct business.”

Splitit differentiates itself from other payment solutions by letting customers pick the number of installments they need, but also by requiring that a hold be placed upfront on the customer’s credit card for the full amount. While that reduces the risk for all parties, it offers customers less flexibility; Splitit markets itself as a budgeting tool rather than a layaway program.

The new B2B proposition functions in the same way. Using existing Mastercard or Visa accounts, merchants and buyers can divide their purchase orders into a series of payments, on terms agreed upon between themselves and the manufacturer. These terms also determine when an order ships — it could ship immediately, after two payments or in a chosen month, for instance. Splitit pays the manufacturer the full amount upfront and assumes the risk.

For many smaller businesses, the timeline of product ordering and inventory management can cause financial strain. By reorganizing the payment schedule to align with cashflow, merchants are freed up to make orders as needed.

“It’s great for the merchant, who gets the goods without cash being taken out of their pocket, and it gives us — the supplier — payment certainty that enhances our operations, providing a clear window into materials and manufacturing planning,” said Ron Kenigsberg, president at shoe brand Miz Mooz.

Splitit has already seen some of its retail partners become consumers under the new B2B model. Conversely, it hopes merchants who begin using Splitit with their supply partners might then consider offering the solution to their own consumers.

“The U.S. is in the early stages of offering installment payments, particularly when you look at how ubiquitous the model has become overseas,” said QuadPay’s Sykes. “In 24 months, you won’t be able to point to a retailer that isn’t offering an installment option.”

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