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Installment-style payments are making waves in the fintech space. And as solution providers satisfy cash-strapped consumers by ushering in an array of alternative finance options, the paradox of choice comes into focus for both digital and brick-and-mortar merchants.

Determining which payment options satiate both shoppers and merchants is perhaps the greatest challenge for alternative finance firms, according to Splitit, an installment payment solution that takes pride in its knack for offering the quickest checkout, omnichannel presence and high approval ratings, the company said.

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Splitit’s research on top firms in the space found that for consumers, the “psychology of price attitudes is highly nuanced,” noting that the flexibility of installment payments enables and empowers consumers to make high-ticket purchases whether they have the credit and financial wherewithal or not. But merchants are facing difficulty selecting a solution that’s the right fit for its specific business model, needs and shoppers.

So, what it boils down to is efficacy. Evidently, the determining factors for selecting a solution range from the ability to garner repeat shoppers and generate higher average order values, to more boiler plate aspects such as preference and convenience. And it’s no surprise that the space is experiencing substantial market growth: In 2017, alternative finance solutions represented $1.2 trillion in volume and have been growing 15 percent year-over-year, according to Splitit’s research. Shoppers enjoy “pay later” options, too, that allow them to try a product before deciding keep the item and eventually paying for it.

“Alternative payment options range from leading providers that offer global reach and zero-merchant risk to specialized providers concentrating on a small number of countries or using innovative technologies to make credit approval decisions,” Splitit said. “These payment technologies create more opportunities to connect with shoppers, drive higher volume with shoppers, and build loyalty, good will and repeat visits. What matters in today’s world is making a choice that is sustainable, risk-free and wide-reaching to help you tap into a world of global consumers who want the goods and services you offer.”

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Alternative payment solutions are becoming more popular among digital and brick-and-mortar retailers.  AP

After analyzing the frameworks of solution providers Affirm, Afterpay, Divido, Klarna, PayBright, PayPal Credit, Quadpay, Sezzle, Zip Pay/Zip Money and Splitit’s own solution, the firm uncovered numerous key takeaways:

Global Presence: As the Internet makes shopping more and more global, Splitit found that it is critical for merchants to select options that are available in countries where business may be done in the future, not exclusively those that are part of an existing footprint, the company said.

Conversion Lift: Splitit said most providers offer some degree of lift in conversion and in “Average Order Value”; as merchants short-list their options, they should choose those that offer the best lift so that unnecessary revenue isn’t left on the table, according to Splitit.

Loyalty and Longevity: A key factor is to consider the provider’s longevity and likelihood of remaining in business “for the long haul,” Splitit said, in addition to “[considering the] consumer ratings of the [selected] provider, because negative experiences have an unfortunate way of rubbing off on your brand.”

Applications and Approvals: “Application and approval concerns do not make an attractive addition to the decision process of making higher-ticket purchases,” Splitit noted. “In fact, a significant segment of shoppers already feels unwilling or unable to take out additional credit on top of what they already have available.”

Payment Portfolio: “Alternative financing options are not mutually exclusive,” Splitit explained, suggesting that offering an installment option alongside a consumer financing alternative may help gain loyalty with shoppers looking to build credit and increase their purchasing power. “Providers that offer both installment and pay later products give you a wider range of options to offer your customers with one 
integration and are more likely to innovate with additional products in the future,” Splitit said.

Transaction Limits: It is critical to confirm that the solution provider’s transaction limits align with your products’ price points, as some providers will place limits on the amounts that they will split or defer, Splitit said.

Shopper Risk: Factors such as membership fees, higher interest rates, late fees and other downsides of traditional credit arrangements may ultimately push shoppers to other alternatives — namely, a competing merchant — that offers a better overall package or a delayed/deferred purchase option.

Risk Exposure for Merchants: Last but not least, merchants should choose options that do not expose them to risks of late or no payment. “You want to be sure that you are paid in full, on time, and without accounting, refund, or customer service difficulties,” Splitit noted.

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