Instalment purchase

Merchants still have some reservations and prejudices against instalment financing. However, instalment purchase can represent great opportunities, both in terms of sales and of customer loyalty. This is why this payment method is making a comeback.

The instalment purchase is still one of the most popular payment methods in many countries. According to a persistent prejudice, the payment method would only be an interesting alternative to customers with a rather small budget. The reality is a different one: From the customer's point of view, the instalment purchase simply corresponds to the modern consumption habits – buy now, use immediately and finance in manageable rates. This is not possible with most payment methods, such as cash payment or SEPA direct debit. Although credit card payments are not immediately charged, this is usually a loan over a rather small time period. The instalment purchase is therefore a payment classic, which online and offline merchants should consider adding to their payment method portfolio.

The terms instalment purchase and instalment loan are often perceived as synonyms and misused. While both are credit financing products and refer to a source of funds, the capital, there are significant differences between them.

When taking an instalment loan, the customer finances his purchase through a consumer loan. The customer must therefore he must identify themselves to the credit institution. Online banks can perform a credit check for a loan in a few seconds. However, the final decision is still given only after all documents (salary statements, etc.) are transmitted. Generally, there is a good two weeks delay between the application and the confirmation.

An instalment purchase is a legal agreement between the customer and the dealer to repay a debt by partial or instalment payments. Unlike the instalment loan, the instalment purchase is a factoring business. The factoring service provider buys receivables directly at the point of origin at the checkout in the online shop or when paying at the point of sale (POS). The customer is not required to identify themselves the credit institution. The entire checkout process can thus take place seamlessly, quickly and efficiently. Naturally, as a measure of risk management, a credit check is also carried out. However, it is made online and in real-time.

Instalment purchase represent enormous opportunities, which remains unused by many merchants. As an additional payment option, the instalment purchase demonstrably augments the number of new customers and optimizes the conversion rate. Instalment buyers are also better sales drivers, with higher average value of shopping carts. This applies in particular to impulse purchases. A product that is out of the customer’s budget is made affordable. However, funding must include attractive conditions and be comfortable (usability).

The payment method instalment purchase must not be more complicated and more elaborate than the actual purchase. Customers should be able to plan and design their instalment purchase easily to match within a given framework, individual and variable sum, the number of instalments to be paid and the term. Ultimately, the decision on creditworthiness and financing must be made without delay - online and in real time. Long waiting times or complex identification procedures influence the conversion rate in the same way as the absence of the customer’s preferred payment methods, causing shopping cart abandonment.

The reputation and prestige of the cooperating instalment service provider should be a decisive factor in choosing a partner. Merchants should also look make to offer their clients a well-trained in-house or outsourced customer service. The quality of the communication between customer service and clients is extremely important, especially for instalment purchases, because of the duration of the financing. Customers always associate these experiences, both negative and positive, with the dealers involved. Therefore, the dialogue should be conducted in a confident and prudent manner throughout the instalment purchase process. Merchants should never forget that customer service is also part of the customer journey.

Settlement and processing of the payment, along with the associated risk and receivables management are of crucial importance. Service providers be able to proceed to a meticulous assessment of all advantages and disadvantages. Retailers should also be familiar with the requirements of their target groups and potential customers.

Use this checklist to check the key product features of an instalment buying solution for performance and to filter the result that is right for each merchant.

Online and offline shops still leave a lot of untapped potential in instalment buying – which is a real opportunity for retailers. The framework conditions of the product, competence and trust in the institution involved are decisive criteria for customers.

Merchants should therefore pay particular attention to their reputation and competence when choosing the cooperation partner. In addition to the mere processing and settlement of payment transactions, qualified payment providers then also take over risk and receivables management - without any further external intervention.