While unused credit largely hasn't been addressed in the U.S., in six countriesBrazil, Turkey, Argentina, Greece, Mexico and Israeloptimizing unused credit is enabling interest-free credit-card based installment plans.
Interest-free installment payments account for 35-57% of all credit card purchases in those countries, with Brazil reporting that over 80% of all online transactions are via credit card based installment plans. For American merchants, this unused credit means trillions in purchasing power and for consumers this means the ability to purchase items they previously wouldve left the store without. Its a win-win for all.
Today more than ever, in order to increase sales volumes and average ticket size, merchants are offering alternative payment solutions such as PayPal Credit and GE Money.
However, most of these solutions require the consumer to open a new line of credit in addition to the credit they already have. And some of these payment technologies work outside the current credit card infrastructure, taking payments away from traditional credit card networks.
Merchants dont realize it, but there are 610 million general-purpose credit cards in America and consumers only use 30% of their available credit. Think about that70% of credit allocated and approved for use is sitting there, not being leveraged. Therefore, in order for merchants to be able to offer customers interest-free installment plans, the best answer does not reside in disruptive technologies, but rather within the system itself.
While installment payments have existed for a long time in the United States, they usually include relatively high interest rates and are generally used when buying really big-ticket items such as jewelry, furniture or cars.
But, what if ecommerce and brick and mortar merchants could offer instant, secure credit card-based interest-free installment plans during checkout? Customers would be more inclined to purchase higher-ticketed items, while allowing them to manage their cash flow according to their monthly budget and making items more affordable, with no impact on their overall credit score. In fact, installment payments on existing credit cards could help improve all credit score. This would allow merchants to tap into an incredible amount of purchasing power.
Almost every native Brazilian or Turk knows that when he goes to the electronics store, or just about any other ecommerce or retail store, he will have the option at the checkout page or counter to pay in installments. This option makes it possible for them to buy items they probably would have never bought without the installment option and enables them to stay within their monthly budget.
In the six countries that currently support this type of payment facility, data shows that when merchants offer this type of installment plan it leads to a double-digit increase in sales and significant lift in average ticket size. This opportunity is something American credit card networks have been interested in implementing for years, but have not been able to bring to fruition.
While the U.S. has often been on the cutting edge of building and implementing new payment technologiesfrom PayPal to Google Wallet to Square and now Apple Paythe answer to increasing purchasing power of consumers and boosting sales and average tickets for merchants lies in a technology that has been around since the time credit cards were invented. Its time to start tapping this un-mined gem.
Alon Feit is the CEO of PayItSimple USA Inc., a payment solutions technology company.