Splitit's multi-account loans aim to surpass card spending limits

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Consumers who own multiple cards often use them as budgeting tools — a credit card for entertainment, a prepaid card for groceries, etc. — but that method typically can't be applied to any purchases that are paid in installments.

Splitit, a provider of monthly installment payment plans for credit and debit card purchases, now allows the splitting of purchases among multiple cards. The new option is meant to be a differentiator against rivals as Affirm, Klarna, Paysafe and PayPal Credit.

But it's also a delicate balancing act — by allowing consumers to split payments among more cards, Splitit also allows them to exceed the balances of any individual account. This may be a benefit to those who can afford it, but it's also an issue for those who cannot.

Gil Don, Splitit’s CEO, said this is factored into the company's decisioning process.

“We’re not in the business of enabling people to borrow more than they can afford, so we place a hold to stop people exceeding their credit limits,” he said. “Our installment loans aren’t intended for everyday purchases such as groceries, but to make big-ticket items more affordable such as holidays, washing-machines or dental treatment.”

To prevent consumers building up debt, Splitit places a hold on their cards for the total purchase amount when they take out installment loans or defer payments, Don said.

New York-based Splitit has introduced a deferred payment offering that lets consumers defer payments for an item bought on a credit card until the end of a trial period of up to 90 days. They can then pay the amount in full or in installments.

Providers of online consumer loans are playing a growing role in e-commerce and have an increasing share of the overall consumer lending market by facilitating online purchases that would otherwise not happen due either to a higher price point or the purchaser’s limited available credit.

“Splitit is a powerful idea, which is simple to implement by merchants and nearly frictionless for consumers,” said Thad Peterson, senior analyst at Aite Group. “By broadening its offer across a user’s cards and providing a zero-interest period, Splitit is increasing the value of its offering for its customer base. Friction is failure in online and mobile payments, and, when friction is reduced, sales go up.”

Splitit offers the new payment options in the U.S. and in other countries where it has signed up merchants. The company supports 1,200 merchants in 25 countries. Ninety-five percent are online merchants, and 75 percent are based in the U.S., with the rest based in Europe, Don said.

According to research conducted by Splitit with Google Consumer Surveys, 27 percent of consumers surveyed are more likely to make purchases if they can use more than one card. Don says the 90-day deferment option will particularly benefit fashion retailers selling shoes or items of clothing. A benefit to merchants of Splitit’s 90-days trial period is simplified administration, since, if a consumer changes their mind and returns an item, no refund is required. According to Splitit’s research, 43 percent of people surveyed said such an option would make them more likely to complete a purchase.

On May 2018, Splitit began offering point-of-sale financing with three monthly installment payments for debit card purchases up to a maximum of $400 per purchase. The debit card option targets more budget-conscious U.S. and European consumers as well as those without credit cards.

Splitit competes with payments facilitators such as PayPal which offers extended interest-free periods through PayPal Credit. Given its prominence in e-commerce through its PayPal buy button, PayPal is the dominant player in the U.S. online consumer lending sector, according to Peterson.

In July 2018, PayPal completed a deal to transfer all its credit receivables to Synchrony Bank, including the PayPal Credit portfolio. PayPal will continue to offer PayPal Credit, but Synchrony will own the PayPal Credit assets.

By enabling customers to use their cards for installment loans, Splitit helps issuers compete with alternative installment payment services such as Klarna, Paysafe and Affirm, according to Don.

Klarna, which is based in Europe and in September 2018 bought London-based merchant bankers Close Brothers' U.K. retail financing portfolio, is establishing a greater presence in the U.S. It enables customers to apply instantly for credit at the online checkout, and settles with the merchant upfront. Customers reimburse Klarna, typically after they receive their purchased items.

Last October, Affirm, which works with 1,000 U.S. merchants, launched a mobile app that lets customers split big online purchases into installment payments with a virtual credit card. The app enables consumers to make purchases even at online merchants who haven’t integrated Affirm’s technology.

In March 2018, Affirm said that it would enable consumers to make purchases using its virtual cards in bricks-and-mortar stores via Apple Pay on their iPhones.

U.K.-based payments firm Paysafe is bringing its Paysafe Pay Later service to the U.S. for in-store payments.

“Our platform doesn’t require a customer to apply for a separate installment loan, so, with Splitit, they can carry on using their existing cards,” Don says. “If they apply for a credit card that offers installment loans as an option, such as Brim Financial, or an account with Affirm, they’re getting an additional line of credit which they need to manage.”

Canada-based Brim Financial’s credit cards offer interest-free installment plans that customers can apply for at the point of sale using the Brim app. Brim’s cards are only available in Canada.

Brim charges a fixed installment fee up-front of 7 percent of the overall purchase price, plus a monthly processing fee of 0.475 percent of the original purchase.

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