Credit card issuers that dominate the industry, such as American Express, Chase and Citi have no intention of ceding the market to FinTechs, particularly when installment lending, a foundational banking product, is the battleground. My classic American Express green card, which I had in the 1990s offered an option to extend payments for specific travel purchases. Instead of settling the card monthly, transactions could be tagged for extended payment.
Walmart took installment lending into its own hands with its relationship with Affirm, as the retailer recobbled its card strategy for private label cards from Synchrony to Capital One, but American Express is the firm that first added installment loan innovation with as a card-based feature. Amex dubs the product as Pay It Plan It.
I just set up a Pay It Plan It transaction on my personal American Express account, the Blue Preferred card (which also pays me 6% in rewards for grocery purchases). Hedging my bets, I registered a $106 transaction just to see how the process worked. It was easy as pie and took less than a minute once I was in the app.
Today’s American Banker talks about how top banks plan to integrate their version of Amex’ quasi card-loan feature, in an article title Can Citi and Chase Beat FinTechs at their Own Game? My money says absolutely, and do not expect other top issuers such as Bank of America, Capital One, Discover, and Wells, or PSPs such as First Data, FIS, Fiserv or TSYS to let this one pass, either.
- The long-dominant credit card is under attack — not only from outside the industry but also from within.
- Consumers who want to finance expensive purchases, whether it’s a new refrigerator or the latest smartphone, often pull out plastic instinctively. The revolving balances that result from their well-ingrained shopping habits represent a lucrative business for many banks.
- But upstart lenders are now mounting a challenge to the card industry, aiming to change both the decisions that shoppers make in checkout lines and their willingness to roll over their debts on an indefinite basis.
Chase already announced My Chase Plan, which we discussed here. It is a little different but logically similar. Instead of a $100 threshold, Chase uses $500.
The Banker continues:
- One threat to the credit card industry comes from online installment lenders that encourage cardholders to refinance their existing debt. Companies such as LendingCluband Social Finance, or SoFi, offer personal loans with fixed repayment schedules and lower interest rates than credit cards.
- The second threat comes from a newer crop of online lenders. Companies like Affirm and GreenSky, which offer installment loans to finance specific purchases, are trying to change consumers’ shopping habits. Their marketing pitches often focus on the perils of revolving debt.
Expect to see more variations in the coming months; for FinTechs, we will have to see what their next act is, but for now, you can still use your traditional credit card to have installment features. It is a good way to accelerate payments on certain purchases, without affecting credit card rewards.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group