Interest free installment payments are a staple in markets like Brazil, Turkey, Argentina, Mexico and Israel, but it hasn't been a big option in U.S. payments.
Early returns from GlassesUSA.com, a New York-based eyeglass lab and e-commerce site that sells frames, suggests there may be some traction for the option at last. The company reports a 12% increase in "high order" values over $119 and a 10% decrease in cart abandonment in the first six months it has offered installment payments to U.S. customers.
"We were looking for a payment solution that would allow financial flexibility and cut down on the hassle of applications and credit approvals," said Daniel Rothman, CEO and co-founder of GlassesUSA.com. "Shopping for glasses should be simple, easy and fun."
GlassesUSA.com is using Splitit, a Herzliya, Isreal-based payment company that allows brick and mortar and e-commerce merchants to offer monthly instalment payments through Visa or Mastercard without paying monthly interest on those payments. Splitit schedules installment payments on the consumer's credit card to be paid to the merchant.
The merchants bear some cost. Splitit charges fees based on the structure of the Splitit service with the merchant, and on the improvement in sales of higher-cost items. But the idea is that consumers are encouraged to buy higher ticket items since they can pay in installments rather than incur the entire charge on their next credit card bill.
The implementation of Splitit on the GlassesUSA.com website was done in three days, during which the installment option was integrated into the merchant portal. The sales uptick for higher dollar items—Splitit is an option for "high order" purchases of $120 or more—is a "clear indicator to us that our customers are increasingly choosing this payment option and realizing the benefits it offers," Rothman said.
Splitit manages credit risk by managing the payments similar to traditional card payments—consumers who stop making payments engage with the card issuer and the merchant does not assume more risk by offering installments.
Splitit, which used to be called PayitSimple, has been plotting its move into the U.S. for about three years, opening an office in New York and signing deals with independent sales organizations to sell the product and partnering with First Data, TSYS and Authorize.net to execute payments in the States.
For Splitit, which recently added new e-commerce technology and is pursuing specific verticals such as health care, the success of GlassesUSA.com is a sign that there is a market for installment payments in the U.S., particularly as new payment options are already proliferating.
"If you look ten or 15 years back, there was no innovation at the point of sale, now there's all sorts of innovation coming to the checkout," said Gil Don, CEO and co-founder of Splitit. "Installment payments aren't new in parts of the world, but they are in the U.S."
Splitit is not the only company with high hopes for installment payments in the U.S. market. Affirm offers installment payments, and FuturePay earlier this year introduced digital credit technology to offer installment pay at brick and mortar stores. And larger companies such as PayPal and Mastercard offer installments, seeing the model as more of an opportunity to increase sales and transaction size, rather than a competitive threat.
The concept of installment payments isn't a difficult one from a technological perspective, said Andy Schmidt, an executive advisor at CEB, saying it involves tying a billing engine to a payments gateway.
"PayPal already enables merchants to bill buyers for individual purchases, while apps like Venmo allow you to split a bill," Schmidt said. "With Splitit, you're simply paying for your purchase over a longer period of time. So while it's not new, it is clever."