Canada's e-commerce market draws new payment models

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Installment payments for e-commerce purchases are starting to take hold in North America as an alternative to standard credit cards, and PayBright is seeking a niche in Canada.

PayBright integrates with a merchant's e-commerce platform and provides another payment option at checkout. The consumer is still buying on credit, but the terms are designed to be simpler because the store purchase, unlike the credit card, has a definitive end date.

E-commerce installments are not a new concept, though there's been more attention to the model given the rise of overall mobile and online commerce. Additionally, merchants are seeking to sell more across borders.

The model has more of a foothold in Europe, where companies like Klarna and Splitit established markets over the past two to three years. Affirm recently launched a mobile commerce installment payment app, citing its own research that said 67% of Americans "fear debt." All of these companies are chasing millennials and other consumer groups that desire alternatives to the traditional credit card model for larger purchases.

"The installment model is superior to credit cards … you don't end up with a balance that's accruing interest that you're not paying off," said Wayne Pommen, president and CEO of PayBright, which formally launched in Canada this week after a three-month beta. "We offer a range of payment terms, but the most common ones have the customers paying off the purchase in six or 12 months."

The lure for merchants is larger tickets since there's little risk to offering installments; PayBright pays the merchant in full at the time of purchase, Pommen said. During the beta, PayBright contends checkout conversions improved between 10% and 25% with average order values at 80% over e-commerce orders without financing, according to PayBright. The company identified its launch customers as Endy, a Canadian online mattress seller; and e-commerce platforms Shopify, Magento, WooCommerce and Solidus.

Companies such as these first noticed a high number of in-store high-ticket purchases were being rejected by the credit card networks, said Ray Pucci, associate director of research services at Mercator.

"Many of these shoppers did not have extensive credit histories, so alternative lenders saw an opportunity and jumped in," Pucci said. "Now these alternative payment options have naturally spread to online commerce that offers a mega addressable market. However, this is becoming a crowded field for lenders, and remember that newcomers will have to compete with Amazon and PayPal, each of whom have a formidable merchant network along with a sizable customer base."

Banks are also taking advantage of the opportunity, said Zil Bareisis, a senior analyst at Celent, noting ICICI Bank and Paytm have partnered in India to provide instant digital credit.

"The benefits range from making credit available to people who may not have a traditional credit card to faster checkout without having to type in the card details," Bareisis said. "It also allows customers to pay after the delivery, which can be important when dealing with new merchants."

PayBright's stated differentiator is its market. The Toronto-based company already offers installment payment technology for in-store purchases, and has expanded to 2,500 merchant locations across Canada with $250 million in consumer credit approvals in its five-year history. PayBright is adding a new channel more than it's adding a new market, Pommen said.

But it's likely to bump up against Klarna, which recently plotted a move to the U.S. — and has drawn investment from Visa as the card network looks for ways to build its own alternative payment option for e-commerce purchases. Klarna is also diversifying, adding subscription payments for users such as golf clubs and receiving broader regulatory approval in Sweden to offer different financial services.

"Canada's tricky because of compliance hurdles and legacy tech hurdles. You have to comply in Quebec separately, for example, and there's also the language barrier," Pommen said. "If you're an international player, you saturate your home market before you think about a country like Canada."

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