From Credit Cards to Installment Loans, Sydney to Ho Chi Min City


The purchase of point-of-sale installment loans is somewhat surprising. Card issuers in the United States have incorporated the model into consumer loans, ranging from business models such as Affirm to Plan It, Pay It to American Express. I can certify that the model works, at least with American Express, after trying it personally and paying off a loan over three months.

What I can’t solve is why bother. A consumer can achieve the same goal, on a credit card, by simply paying more than the minimum owed. The upside seems to be that you feel like you’re paying off just one item, but since revolving debt is legally treated as a balance, the loan is nothing more than a zero-sum game for the consumer.

Go figure it out. People seem to enjoy the placebo effect of isolating a purchase and feel like they’ve paid off a loan.

Two stories illustrate the popularity of installment loans used in a credit card model.

Case 1: Visa acquires a Buy It Now Pay Later model in Australia.

Business Insider (Australia) reports:

  • Visa has announced the launch of a new installment payment service, intended to challenge the Australian Afterpay.
  • The pilot program allows existing Visa cardholders to pay for a purchase from select retailers in the same way as Afterpay, but without having to register for an app.
  • The service will be available in 2020 and comes as Afterpay faces increasing scrutiny from regulators.

Afterpay is a model similar to To affirm in the US market. It is a stand-alone feature that provides point-of-sale financing. Visa’s new product functionality allows you to fund within the structure of the credit card account. Similar to Plan, Pay, you can mark a transaction and organize the special fundraising function. As we mention in this Recent perspective from the Mercator Advisory Group, Citi and Chase are also in the game. Expect (many) more issuers to follow.

  • Sam Shrauger, senior vice president of Visa and global head of issuer and consumer solutions, said the company’s tiered payment solutions are “game-changing” by allowing buyers to use it without having to download a application or to obtain a credit card.
  • “We anticipate that installment payments will become a fundamental payment method at checkout for domestic and international commercial payment transactions,” he said, according to Reuters.
  • Installment payment services have grown in popularity around the world. According to the Visa statement, Euromonitor International found that in 2017, remittances increased 15% year-over-year, twice as fast as credit cards.
  • Visa expects to have the new payment option available in 2020.
Case 2: Shinan Card (Korea) uses installment loans to enter the Vietnamese market.

Now, 5,000 miles away, in an entirely different market, we are seeing South Korea’s largest credit card company, Shinhan Card Co., entering the Vietnamese market with a similar product, according to one. press release by Pulsenews.

  • In January 2018, the company agreed to acquire the full stake in Prudential Vietnam Finance Company Ltd., a Vietnamese subsidiary of UK financial giant Prudential Plc, and received the green light from the Vietnamese government earlier this year to complete the deal. . .
  • As Vietnam’s fourth largest financial player, SVFC has strong risk management capabilities and has a strong client list in Ho Chi Minh and Hanoi, to whom it offers a range of credit products.
  • Shinhan Card plans to take advantage of SVFC’s non-bank financial institution license to expand its business portfolio to retail finance, including the purchase of consumer goods and auto finance, with the goal of making SVFC the largest multi-financial services company in Vietnam.

Perhaps the pleasant nature of repaying an installment loan will outweigh the practical impossibility of this product feature. Maybe people don’t realize that if they pay multiples of their minimum owed, it will accomplish the same event.

As the National Association of Installment Lenders said on their installment loan history page, installment loans date back to the mid-1800s, when people needed funding for sewing machines and horse strollers, evolving into businesses such as Household Finance (my alma mater from 1977) and Beneficial Loan Company (today ‘hui disappeared).

All that is old is new.

Presentation by Brian Riley, Director, Credit Advisory Services at Mercator Advisory Group

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