%20(1).jpg)
What is the Visa Dispute Monitoring Program? (VDMP)
Helping merchants drive sales and improve cash flow, and consumers boost their spending power between paychecks, installment payments are something of a win-win for businesses and their customers. It’s no wonder 45 million people in the US already use installments when making purchases.
Giving customers the option to pay in installments is especially useful if you want to court younger consumers. Klarna, an installment payment provider says that 70% of its customers are either Gen Z or Millennials, who are less likely to be able to afford expensive purchases - though older consumers are also starting to see the benefits. But does that mean all businesses should offer installment payment options?
Below we explain how installment payments work for merchants, the key benefits for you and your customers, and help you decide whether or not it's right for your business.
Also known as Buy Now, Pay Later (BNPL), installment payment is a type of credit you can offer your customers that allows them to spread the cost of their purchase over multiple payments. Each payment is usually an equal portion of the total cost of the product and made at regular intervals.
Installment payments are commonly used for big ticket items, though they can be used for anything your customer wishes to pay for at a later date. They are especially attractive to consumers as only the merchant incurs fees for using the service.
Valued at $90 billion in 2020, the BNPL market is expected to hit a staggering $4 trillion by the end of this decade.
There are three main types of installment payments:
Both installments and subscription payments enable you to collect recurring payments from a customer. The major difference is that, with installment payments, there is a set balance that needs to be paid off by a particular date, whereas a subscription is an automatic recurring payment that you can keep collecting until the customer retracts their permission. Both types of payment have their uses for merchants. Installments are generally used for a one off purchase, while subscriptions are usually in exchange for the provision of an ongoing service.
Many consumers prefer paying in installments over credit cards because they find it more flexible and easier to make payments, and because it allows them to avoid credit card interest. However, while offering installment payments might be the difference between making or not making a sale, merchant fees can potentially be higher - ranging anywhere between 2% and 8% depending on the provider. In comparison you can expect to pay between 2-3% you pay for accepting credit card transactions.
The benefits of offering installment payments as a merchant are:
Here are the key benefits of installment payments for customers:
Who could argue with a better conversion rates and improving the shopping experience for your customers? Well, even despite those benefits, you should seriously consider whether installment payments are the right option for you and your customers. As mentioned earlier, there are some potential challenges to consider, such as higher fees and the risk of your customers overspending.
If installment payments sound like they could benefit your business and you're ready to offer the method to your customers, Checkout.com can help.
Our Unified Payments API allows you to offer your customers’ most desired payment options, including digital wallets, global card schemes, and, of course, installments. Wherever you operate, we can help you find the most suitable local payment methods for the customers in your region. That means a higher conversion rate, happier customers, and boosted loyalty.
Discover our full range of payment methods and find out more.