More than ever, retail players are faced with the challenge of developing their sales in an already competitive environment amplified by the harmful effects of COVID.
To achieve this, indicators such as conversion rate and average basket are effective levers on which retailers are constantly working.
Even if an omnichannel approach, a fluid customer journey and a personalized purchasing experience are prerequisites for increasing these 2 indicators, offering consumers payment facilities such as fractional or deferred payment also plays a decisive role.
PayPal claims an average shopping basket up to 3.5 times higher thanks to its 4-installment payment services.
According to a study conducted by Opinion Way and ONEY in 2019, 1 in 2 consumers would even be prepared to forgo a purchase if they could not benefit from fractional payment.
This is a real growth driver. Buy Now, Pay Later " seems to have a bright future ahead of it! Let's decipher the reasons behind this major new consumer trend, which already accounts for an estimated 5-10% of the market.
A major purchase trigger for consumers
Let's start with the beneficiaries: as far as consumers are concerned, all are concerned, and it would be wrong to believe that the use of payment facilities is conditional on consumers' purchasing power. The most enthusiastic are those in the highest socio-professional categories(37% use them regularly).
According to a survey conducted by Opinion Way in June 2020, 30% of customers, across all CSPs, use this payment method at least every two to three months. What's more, fractional payments are growing in all sectors, thanks to a ceiling specifically linked to the type of bankcard used.
Fractional payments can not only increase immediate purchasing power for some, but are also often a means of smoothing out spending for others, thus preserving both purchasing power and savings.
This is all the more true given that consumers have a variety of reasons for using split payments: they may want to deal with unforeseen circumstances, or give in to an impulse purchase. Particularly in the latter case, the ease of the process (it only takes a few seconds for the customer, and doesn't interrupt the act of purchase as they don't have to provide proof of solvency or identity of any kind) is a major trigger.
A competitive factor for companies
On the corporate side this time, the major obstacle (i.e. the risk of default) having been removed, the competitive disadvantage of not offering fractional payment is such that it is spreading very rapidly.
Indeed, Payments Europe estimates that around 15% of French retailers offer such payment facilities. Although this is still below the European average (23%), as the trend continues in e-commerce and develops in brick & mortar, we can expect the gap to close rapidly.
The main reason for this is that, since the risk of default is now borne not by the retailer or chain, but by the companies offering them fractional payment solutions, the chain stands to gain: "We manage the risk, since the retailer receives his cash payment at the time of purchase. If there's a default, it's on us. All we had to do was better understand the customer's risk profile," says Louis Chatriot, President ofAlma.
All the more so as the interest rates charged on these facilities are generally between 1 and 4%. Historically, it was the banks that offered this type of payment facility, but today the market has diversified. There are players such as Floa (ex-Banque Casino), Cofidis, Cetelem and Oney, as well as specialist fintechs such asAlma and Sweden's Klarna. These fintechs have the wind in their sails and are poised, if not to replace, at least to seriously compete with banking players in this sector. They are highly agile, and are now taking on the major retailers (like Kookaï or Devred for Alma).
Indeed, once these start-ups have succeeded both in raising the funds needed to avoid cash-flow problems and in putting in place procedures to mitigate risk, they have nothing to envy from conventional banking structures. This is the key element of the scheme, because unlike a traditional credit process, payment in 3 or 4 x without charge over 90 days does not fall under the Lagarde law of 2010.
This makes it easy and immediate to subscribe. As the time-consuming processes of filing applications and verifying identity do not apply to this type of payment, the risk of fraud or default is calculated on the basis of available information, either from loyalty schemes or from banking organizations linked to consumers' bank cards. All this takes just a few seconds, so it's easy to understand the potential risk incurred by these structures, and by the same token, the importance for them of implementing reliable and powerful algorithms to discriminate between consumers.
A win-win formula
Fractional payments still have a bright future ahead of them: not only do they enable consumers toincrease their purchasing power and smooth out their spending, they also enable retailers to increase their average basket size and conversion rates via a secure business model.
Financial organizations are not to be outdone either: they can target new customers by means of rebound offers, where the consumer is offered more traditional credit following a fractional purchase repaid without incident.
There's no doubt that this winning solution for all market players will continue to develop in the months and years to come (growth is estimated at over 45% annually between now and 2030), convincing the last remaining retailers to adopt this major asset for optimizing their business.