The buy now, pay later (BNPL) option is a popular way to make purchases, especially among younger consumers. With this option, merchants allow customers to defer payment on their purchase for a set period of time, usually between two and six months. Customers are typically required to make a minimum monthly payment during the deferred period, and interest is charged on the remaining balance. BNPL can be a great way to finance a large purchase or spread out the cost of an expensive item over time. However, it’s important to note that interest rates on deferred payments are often higher than standard credit card rates. Splitit wades in.
Buy Now, Pay Later provider Splitit announced today the release of their global API for Installment as a Service, which they claim leapfrogs “legacy” BNPL provider platforms. Splitit aims to help merchants retain the focus of their customer relationships, improves conversion rates that are hampered by low approval rates, and eliminates friction at checkout caused by regulatory requirements. Splitit CEO Nandan Sheth says:
“Splitit is not a payment method. We are not an offers engine using harvested data or a super app in the making. We are a top-of-wallet service that empowers consumers, merchants, processors, networks and issuers. We are the only installment platform to offer a unified global experience by utilizing existing payment rails,” notes Sheth. “The appeal of Splitit is that any consumer that has used their card to make a purchase will intuitively find our solution an easier way to pay.”
According to the company, any consumer with available open-to-buy on their credit card is automatically eligible to use Splitit. The merchant is able to embed the Splitit API into the checkout process, so no changes to the merchant’s acquiring relationship are needed. Based on how the Splitit service is described, it sounds like all they are doing is authorizing the consumer’s card for the full amount of the purchase so that funds are held, and then billing it in multiple installments. Even though the consumer already has this capability as part of having a credit card to begin with, they would pay interest to the card issuer for carrying a balance month-to-month. Since the Splitit option is free to the consumer, the merchant must then be paying a fee to Splitit along with the extra transaction fees associated with turning one transaction into 4.
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group