Bloomberg covers the growth of installment lending as US lenders such as Affirm attack the market. Square mentioned they were getting in the ring in October and outside the US, Klarna (Sweden) and Afterpay (Australia) are taking hold.
- Affirm and Afterpay say they’re targeting millennial shoppers by filling a gap between credit cards and store credit, which require lots of paperwork and a strong credit rating.
- Perhaps mindful of the new competition, established players such as Discover warn that these upstarts could run into trouble should the economy sour and defaults spike.
- Consumers apply online or via appand learn whether they’ve been approved in seconds. They click a button at checkout on the websites of participating retailers if they want to pay by installment. Cotton On, which sells inexpensive apparel, began offering U.S. installments through Afterpay in August. E-commerce chief Brendan Sweeney says 20 percent of buyers are already using the feature, which breaks up bills into four equal parts spread over six weeks and charges no interest.
- “I was kind of skeptical that there would be a market for people interested in installments, but there clearly is,” he says. “We’ve seen a remarkable uptake from millennial customers.” Sweeney says shoppers spend $50 on average per order.
The article is timely, notably as Blispay, a Baltimore Fintech, announced that they were suspending lending. This comes at the wrong time, as merchants prepare for the winter holidays.
Sure, credit may be easy but do you want to finance $50 over six weeks? I’d be afraid of being late if I had to pay weekly and would prefer to pay the whole balance.
Afterpay Touch an Australian version of the program charges a whopping 6% fee to the retailer. It would seem the scalability is low, particularly in a market that is sensitive to credit card interchange rates.
Holiday shopping might be best left to credit cards. With my American Express in hand, I can purchase anywhere, never worry about my credit limit, and if need be, use the “Plan It” function!