Installment payments in eCommerce: A rising trend

Offering installment payments in eCommerce is an increasing trend. We will tell you how the market is doing and why you should consider implementing it in your online store.

In some ways, we are experiencing online the revolution that deferred payment brought to physical commerce. However, as is often the case with all things digital, it is a simpler process with some additional advantages in this channel.

Installment payments in eCommerce: The growing trend

It is clear that the number of payment methods influences conversion improvement. However, it is no longer enough to offer payment by card, mobile applications, or other platforms.

Paying in installments, or BNPL (Buy Now Pay Later), offers a different way to shop. It allows users to consider higher-value purchases thanks to the advantage of splitting the payments into several installments.

According to a report published by Statista, installment payments in eCommerce are expected to generate 450 million dollars between 2021 and 2026.

These are spectacular numbers, but it is worth remembering that in the previous period, between 2019 and 2021, it had already experienced a 400% growth.

These financial services and platforms are very popular worldwide. About 3% of global eCommerce purchases are made in installments. This does not mean that penetration is the same in all markets; for example, countries like Germany or Sweden stand out, where this percentage is ten times higher than the average.

 

 

Why are installment payments popular in eCommerce?

Behind this market movement, as always, there is an explanation or at least certain variables that have influenced this change in behavior. We can summarize them as follows:

• Channel maturity opens up to more expensive products: There is increasing trust in eCommerce; users have incorporated it into their consumption habits and have sufficient digital skills and guarantees to purchase higher-ticket items, which may potentially require financing.
• Facilitates purchases without decapitalization: Users may be able to afford the payment but prefer not to make a significant investment to avoid losing liquidity immediately (just as happens in retail).
• Boosts conversion during strong seasonal periods: The average consumer tends to concentrate their purchases at specific times (Christmas, Black Friday, Sales). When facing multiple expenses, they will likely choose eCommerce sites that allow installment payments to avoid immediate outlays.

Additionally, beyond these three points, which are quite objective and have a direct impact on conversion, there are other somewhat more subjective factors that also influence the customer’s final decision and their shopping experience.

For instance, aspects like the sense of solvency projected by a store that allows deferred payment. Indirectly, we are telling the customer that we have the financial capacity to handle the transaction and that we are not a short-term business, but have medium- and long-term plans.

Lastly, it is worth highlighting that increasing payment options enhances the likelihood of closing sales. Users need to be able to choose, and the possibility of paying in installments in eCommerce may have a very positive effect on your sales figures at the end of each month.

What we are achieving is clearly improving the shopping experience by creating a bond with the customer and, therefore, increasing the chances of future repeat purchases.

Paying in installments doesn’t (Necessarily) mean getting paid in installments

Of course, everyone can choose the installment payment system for their eCommerce. But basically, we can opt to financially support the purchases ourselves, manage the collections, and assume the fraud risks, or alternatively, use a specific platform.

The advantage of the second option is that services provided by companies like Affirm, Afterpay, or Klarna handle all the processes and risks mentioned, while also crediting us the total amount of each sale, regardless of whether the final customer decides to pay in three monthly installments.

What could slow down the trend of installment payments in eCommerce?

Although the prospects are very positive, we are always exposed to factors that can modify them upwards or downwards.

We cannot deny that we are living in somewhat turbulent, unstable times, in some economies especially hit by inflation.

This directly affects consumers’ planning, who may be hesitant to make an installment purchase, although at the same time, for others, it could be the ideal solution when making a significant expenditure.

In any case, it seems clear that installment purchases in eCommerce are on the rise, and stores that decide to implement them will become increasingly attractive to consumers.