Visa’s chief economist recently warned that fintechs are disintermediating the credit card business of banks with instant access to installment loans. Now Visa is looking to disrupt fintechs by giving issuers a way to do the same.
Visa is piloting API-based technology that allows issuers to extend the option of an installment loan to existing credit card customers at checkout, adding to their repayment choices, the San Card Network said Thursday. Francisco.
The move appears calculated to deter credit card customers from turning their businesses over to online instant finance centers like Affirm and Klarna, which are rapidly spreading as popular options for consumers looking for other ways to pay. expensive items without increasing their credit rating. .
Visa gives issuers a way to counter these forces through an API that offers a range of alternative payment options to customers in addition to their current credit card balance, Visa said in the statement.
In 2010, fintechs held only about 1% of unsecured installment debt in the United States, according to Visa’s analysis of anonymized personal loan data from TransUnion. But that number jumped to 36% in 2017 and is estimated at nearly 40% today, according to Wayne Best, chief economist at Visa.
When consumers shift their spending to an installment loan provider, it blurs their risk profile, he told SourceMedia’s Card Forum in May.
“When you, as a consumer, transfer a credit card balance… to unsecured installment credit, it doesn’t weigh as heavily on your credit score,” Best said. “Let’s say I was a first-rate customer before; now that has propelled me into a category of choice.
Issuers can counter this trend by offering installment loans directly. Issuers using Visa’s installment loan solution may offer credit card customers an additional option to split their purchase into smaller equal payments over a set period for in-store, online or travel purchases, according to the release. .
Visa’s instant financing approach would be more streamlined for existing customers, requiring no credit checks or additional agreements, while online installment loan providers like Affirm typically require buyers to provide their name, address and phone number. -mail, their mobile phone number, their date of birth and the last four digits of their social security number.
Visa’s solution eliminates this step, removing another sticking point in the payment process.
“Visa’s disbursement capabilities are a game-changer by allowing issuers to take advantage of an existing payment account that consumers are already familiar with, instead of requiring them to go through a credit check, download an app or ‘open another line of credit,’ said Sam Shrauger. , senior vice president of global solutions for issuers and consumers at Visa, in the release.
Under Visa’s installment loan program, issuers could also give customers different terms for installment loans based on their risk parameters, and customers could choose to carry installment loans over to their balance. the credit card later, if they preferred.
The markets in which Visa is piloting the concept (India, Romania and Russia) provide an indication of its installment loan strategy. These are areas where consumers are not as accustomed to racking up credit card purchases as they are in mature credit markets, and banks could use installment loans to develop this behavior.
“We expect remittances to become a fundamental over-the-counter payment method for domestic and cross-border payment transactions,” Shrauger added in the statement.
Visa is not the only traditional credit card provider to venture into installment loans. Next month, Chase will roll out “My Chase Plan” to give bank customers the ability to make purchases with an installment credit plan, and American Express rolled out in 2017 a similar approach called Plan It, Pay It.
Amex’s program allows credit card customers to split payments for larger purchases into payment plans that are built into the total monthly outstanding balance.
The goal of these programs is to expand the credit card user base and satisfy merchants with more options, including links to loyalty programs.
An analyst doubts traditional credit card lenders will see much interest in offering installment loans in the mature US credit market.
“Some thin file consumers might find terms easier with $ 300 and $ 500 point-of-sale financing, but in many cases, they’d be better off applying for a starter card from a major card issuer.” said Brian Riley, director of credit cards. advising Mercator Advisory Group on recent installment loan products from Chase and Amex.
Visa plans to roll out the solution on a large scale by early next year through its Visa Next hub.