Video games have long been supportive of new payment systems, in part because many games cater to an audience that may be too young to have a traditional bank account or credit card. But can gamers also be a good target market for financing?
The Austin, Texas-based retail credit company NewComLink is extending its platform to Sony to approach young consumers who want to buy a PlayStation 4, Sony's flagship gaming system. The purchase also includes a two-year subscription to PlayStation Plus, a service that provides a new selection of free games each month as digital downloads and discounts on full-priced games.
"Instead of doing outbound marketing to new customers, the cost of customer acquisition for this model is much less," said Terence Spielman, NewComLink's chief technology officer.
Consumers can buy a PS4, which sells for about $350, for a $9.99 payment followed by $24 monthly payments for 24 months. Consumers fill out an online application and receive approval within a few seconds. If approved, the consumer downloads or prints a pass with a virtual credit card number that is used to obtain the PS4. NewComLink takes a percentage of each transaction that's processed through its application programming interface. Risk management is managed through partners that NewComLink would not identify.
The initial concept is simple—it's designed encourage more frequent purchases over time by amortizing a larger initial cost. But it's also a way to reach consumer groups with less credit card penetration who may be more open to digitally-focused installment plans. The average credit score for consumers between the age of 19 and 29 is 628, compared to 700 for Baby Boomers, according to Experian. Millennials also spend a lot of money on digital entertainment.
Their lower credit scores makes it more likely that young people will be turned down for store-branded credit cards, creating an opportunity for NewComLink to provide alternative financing, Spielman said.
While NewComLink's partnership with Sony is focused on gaming, there is an opportunity to extend the model to other retail categories, Spielman said.
"The lenders and banks don't issue credit five dollars at a time; they go larger," Spielman said. "So it's exciting to think about where this model can go down the road."
Companies are trying different strategies to capture young consumers, who use prepaid cards more than other demographic groups and are more open to newer payment methods such as P2P apps. And alternative or emerging channels such as mobile are also catching on faster for gaming payments than for other retail categories.
At the same time, Sony has shown a willingness to embrace different payment methods such as carrier billing, stored-value cards and PayPal to enable their customers to purchase digital content through their PlayStation consoles.
The integration between in-store credit and mobile commerce is not yet as widespread in the U.S. as in other markets, though the market is growing. PayItSimple recently partnered with Stripe to combine financing with payments. And mobile point of sale company Affirm has a process for accepting installment payments.
Financial institutions such as Barclays are offering online installment payments for larger-ticket items, said Gareth Lodge, a senior analyst at Celent. "The interesting bit is they're targeting consumers who may not qualify for [credit cards]…they are acting as an aggregator, so the loan risk is packaged and sold to a number of lenders, thereby reducing their risk."