The installment loan playground has become more interesting – and global – today (June 27). Visa announced that it will bring the power and ubiquity of installment loans to digital and physical point of sale (POS) through application program interfaces (APIs) that support the development of custom installment plan options for Visa card holders.
This offering is the latest set of APIs made available to issuers and FinTech companies via the Next visa “Digital first” platform offer. The goal is to create a consistent and ubiquitous user experience across the channels they purchase by leveraging the credit and debit relationships already in place with their banks.
Globally, installment payments are a popular credit option, and for good reason – with a $ 1.2 trillion market in 2017 growing at twice the rate on credit cards. Consumers have another tool to manage their spending, and merchants typically see increased conversion rates and larger carts when these options are presented to their customers.
When installment payments are available, they are highly valued. In Brazil, one of the early adopters of installment payments, approximately 50 percent of all credit payment volume is in installments. In Canada, 41% of cardholders surveyed said they would consider using installment payments on purchases of $ 500 or more.
However, in the United States, the situation is somewhat different. Point-of-sale installment loan is simply not available.
“It’s surprising at first glance, but one of the most underserved markets in the world is the United States,” Visa SVP, Global Head of Issuer and Consumer Solutions Sam Shrauger Karen Webster said in a recent conversation.
It’s not that consumers aren’t interested: around 74% of U.S. cardholders said installment payments were helpful for budgeting, 70% thought they can ease the stress of large purchases, and 60% of millennials in the United States said they were interested in outlets. financing for large online purchases. However, the options are limited.
This is starting to change, however, as FinTech companies like Affirm, Afterpay, and Klarna have entered the space in recent years. They are popular, but far from ubiquitous, and offer a somewhat fragmented user experience.
Fragmentation, Shrauger noted, is no fun for consumers and ultimately has a chilling effect on their desire to work with another installment provider. From a consumers perspective, what they’re buying, where they’re buying it, or what channel they’re in right now triggers the payout options presented to them. Each has their own approval processes and results in a different credit relationship that consumers need to manage. It can be difficult to keep track of all of the merchant outlet touch points that a consumer may come across. Instead of boosting conversions, he said, in some cases these options will actually cause a consumer to abandon the purchase.
Visa’s approach, through its set of APIs, is an effort to change that experience for consumers, merchants and issuers.
“Our goal was to give cardholders access to a new way to pay, through a feature that is part of something they already have in their wallet: their credit and debit cards,” said Shrauger. “We can solve these types of large-scale fragmentation problems, and do it by [using] products that consumers already regularly use and understand – instead of asking them to step into an entirely new and unfamiliar world of credit. “
Unlock the power of digital payment credentials
What Visa’s new payout API suite does basically is enable its issuing partners and FinTech companies to create installment payment offerings for their debit and credit cardholders. The amount subscribed, the impact on a consumer’s line of credit, the billing structure – all this will be decided by the individual issuers, based on their preferences and needs. Certain things – a fixed number of payments, at a fixed interest rate, over a set period of time – are at the heart of the installment offer, of course, but the specific details are to be determined by the issuers.
Visa’s role, as a network, is to enable connections at merchant points of sale, so that the moment the customer accesses either a traditional SoftPOS or an online site. POS at checkout and present their Visa card – customers are offered a choice of payout options for which they are eligible. For online purchases, the offer may even appear earlier, on the user’s home screen. This will also allow issuers to qualify the offer after the purchase is made. A consumer, for example, may receive a text message asking if they want to convert their purchase into a three-month installment plan.
It’s something Visa’s issuing partners are asking for, Shrauger told Webster. Among the company’s most recurring conversations with its issuers is how Visa can leverage digital to provide customers with as many tools as possible. With Visa’s payout APIs, Shrauger said Visa is doing what it has always done – giving issuers a new tool to expand the relationships they have with their cardholders – globally.
“Digital is giving us – and our issuers – new ways to add functionality to payment credentials in ways we couldn’t before,” said Shrauger. “A single credential can serve multiple purposes in a digital world. And with a consumer who has worked with an issuer for many years, possibly with multiple accounts, there is an excellent position to extend their reach by giving them better access to services. “
Additionally, he noted, the ability to bring more services under these payment credentials means the consumer has the opportunity to dramatically streamline these credit relationships. Instead of managing a multitude of Payment platforms, the consumer has one place and one way to manage all of their relationships at once.
Why Issuers Are the Best POS Installment Lenders
The worst time to try to educate a consumer on a product, Shrauger noted, is in the middle of a transaction. The data backs this up, as does common sense, especially for a product that many consumers are unfamiliar with. No one is better served by a consumer trying to figure out what they want to buy and whether or not they understand the concept of payment in installments – especially with an unknown company.
“We think it’s best to eliminate this from the buying flow. Issuers can do this in unique ways, because of the ongoing customer relationship and consumers’ familiarity with their products, ”he said.
Consumers, he noted, often register with their issuers. They check their balances and statements, and pay their bills. This means that the issuer has a unique opportunity to introduce and educate consumers about their installment payment offerings long before they get to the point of sale. It also means that the issuer has a much clearer picture of the client’s entire financial life than a single payment lender who relies on a much smaller set of publicly available data.
Often installments are transactions without context. The great advantage of a sender relationship with the customer is the totality of information that can be taken into account to make an offer. It’s “so much more holistic that there is no one in a better position than the issuer to deliver the product and make it transparent,” said Shrauger.
Ultimately, he noted, everyone benefits from products that are easy to use, transparent to understand, and universally available. While there are markets around the world today where this is the case (Brazil, Mexico, and Turkey come to mind), a truly global and ubiquitous product is what the market needs.
In the coming months, the payment of Visa Apis are being tested in the United States, India, Romania, Russia and the United Arab Emirates. Global players include ING, PayU and Abu Dhabi Commercial Bank, among others.
However, in January 2020, the program will begin a larger launch, from the United States – and hopefully spread to the rest of the world from there.
“In payments, predictably, reliability and the underlying knowledge that consumer data is secure and reliable is essential, absolutely essential, to have a lasting relationship with the customer,” said Shrauger. “For anything to become a habit point, you have to understand that wherever the consumer goes, they have the same consistent experience, regardless of what they buy or where they buy it. This is what we hope to bring in installments. “