Credit card industry data indicates a fall in credit card spending, which makes Visa’s recent launch of an installment purchasing platform impressive. While the credit card industry works its way through the COVID-19 recession, Visa’s move to mainstream a buy-now-pay-later (BNPL) platform creates a timely option for consumer credit.
First, consider falling credit card volumes
In the United States, Digital Transactions noted, “Three of the nation’s largest banks reported Tuesday that their credit card purchase volumes fell by more than 20% in the second quarter as the Covid-19 pandemic slammed the brakes on the economy, though things were better on the debit card side. For top issuers:
- New York City-based JPMorgan Chase & Co., the biggest U.S. credit card issuer, posted credit card sales volume of $148.5 billion, down 23% from $192.5 billion in 2019’s second quarter.
- Meanwhile, Chase’s cross-town rival Citigroup Inc. said purchases on its North America-issued general-purpose credit cards fell 21% year-over-year in the second quarter to $74 billion. Purchases on Citi’s big portfolio of retail cards dropped 25% to $17 billion.
- And Wells Fargo & Co. said consumer credit card point-of-sale purchase volume dropped 22% from a year earlier $15.8 billion and was off 13% from the first quarter. POS volume on Wells debit cards, at $93.1 billion, was flat compared with a year earlier, even though transactions slipped 13% to 2.03 billion.
Across the pond, in the U.K., BBC noted:
- A total of £8.7bn was spent on credit cards in the first full month of lockdown in April, half the level of April last year, U.K. Finance said.
- The banking trade body said this was the lowest level of spending seen since the last economic downturn.
- The cancellation of holiday plans is one likely reason for the fall.
Now, consider Visa’s new platform
Visa announced an installment solution that might rival the fintech model and offer mainstream credit card users with the ability to create installment loans outside the scope of their credit cards.
- COVID-19 has accelerated an unprecedented shift to technology for consumers who want the convenience, speed, and safety of digital technologies — from shopping online to tapping to pay, curbside pickup, and in-app purchases.
- You can add installment payments to that list. Paying in installments, or having the option to pay in a set number of equal payments for something at the point-of-sale, is the latest convenience offered by Visa and welcomed by a majority of U.S. millennials.
- Visa’s installment solutions are becoming a key element of Visa’s strategy to help our clients and partners give eligible consumers more flexibility to pay by simply using their existing Visa credit cards at checkout.
- Installments are attractive to sellers, with many seeing an increase in average ticket size and average conversion rate when installments are available as a payment option at checkout.
The offering comes out of the gate with strong positioning; Visa defines its strategy in detail here.
- TSYS, Global Payments Issuer Solutions business, will be the first issuer technology partner to offer Visa’s new installment solution at the point of sale where participating financial institutions can provide installment plans for their cardholders. Commerce Bank is the first bank in the U.S. to begin the installments pilot on a limited number of Commerce Bank Visa credit cards, leading up to commercial launch in Fall 2020.
- ChargeAfter is the first partner to launch Visa installments in the United States with two clients, 42nd Street Photo and Tire Agent, who are now offering Visa’s installments solutions to their eligible U.S. buyers.
- ChargeAfter is also working with Cybersource, Visa’s global payment management platform, to bring installments payment capabilities to Cybersource’s sellers worldwide.
Now is an exciting time in credit cards as consumers adapt to the uncertain world, and Visa’s play into installment loans might protect traditional bank financing from shifting to non-bank and fintech offerings. The model will not work in every credit card spend category, but there will be areas where the process will find traction.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group