Picking up on the often reported data point that those in the millennial age group are debt adverse, Pay Pal is introducing a product allowing online and mobile shoppers to make payments for a specific product over time. The payments are structured within a defined period and do not incur interest, although the cost for the item may be higher for those purchasing over time:
The company is offering consumers a choice between buying the machine outright for a discount—or stretching the payments over nine months. The enticement looks to be effective. Since Shop.com introduced the option last July, average order sizes have increased from $123 to $140 and shoppers are buying more big-ticket electronics, said Eddie Alberty, vice president of strategic partnerships at the Greensboro, North Carolina, company.
This is not a new concept. Just this past week, a similar product offering was announced with MasterCard and some of its issuers to offer payment plans unique to specific purchases. More on this here: http://www.finextra.com/news/fullstory.aspx?newsitemid=28346. Also, online and mobile retailer Fingerhut has been offering similar opportunities to the credit challenged for decades: http://www.fingerhut.com
But this is PayPal, so this announcement will certainly garner attention from its very loyal base of customers. As emphasized in this article, it may also get the attention of regulators who will be paying particular attention to the way terms are disclosed:
Merchants and payment providers are looking for a smooth and easy checkout; regulators want full disclosure of the rules. PayPal in May agreed to pay $25 million in refunds and fines to settle a complaint from the federal Consumer Financial Protection Bureau, which alleged it signed up online shoppers for credit without their permission and forced them to use PayPal Credit rather than their preferred payment method. As part of the deal, PayPal said it would improve disclosure so shoppers understand what they’re signing up for.
Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group
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