27 October 2016's credit service, Baitiao, allows e-shoppers to pay by installments. Photo: Baidu's credit service, Baitiao, allows e-shoppers to pay by installments. Photo: Baidu

Could installments be the key to loyalty in e-commerce?

Ever since credit cards first became readily available in the 20th century, consumer spending has been driven by borrowing.

Today, plastic cards continue to dominate consumer credit in many places, but across the globe and particularly in the Asia-Pacific region, the traditional installment plan is taking a new form for the digital generation.

The Asia-Pacific has long been a region dominated by cash and populated by consumers who don’t have bank accounts.

Because Asia is also one of the most dynamic e-commerce markets in the world, consumers and merchants look to alternative payment methods to buy and sell online – from local credit cards to cash on delivery, to mobile payments.

In China, for example, e-wallets like Alipay’s account for 58 percent of e-commerce purchases.

With 63 percent of e-transactions in the Asia-Pacific set to be via non-card methods by 2019, it’s no surprise that the rise of installment plans in this region has been driven by alternative payment providers.

In 2014, Alipay launched a line of credit, known as Huabei, offering loans and installment payment options on Alibaba Group Holding Ltd.’s shopping platforms Tmall and Taobao.

Last year, on Nov. 11 – also known as Single’s Day and the biggest shopping occasion in China – more than 60 million payments were made using Huabei.

E-commerce giant also launched Single’s Day promotions of its credit and installment service, Baitiao, and garnered an eightfold increase in users.

In its latest Global Payments Report, Worldpay found that Alternative Payment Methods (APMs) are also gaining traction beyond the Asia-Pacific.

The report found that across the world, APMs inched past card payments for the first time ever in 2015, gaining 51 percent of global market share.

This gap is set to widen this year and beyond, as buying power across the Asia-Pacific continues to grow and more consumers worldwide opt for the convenience of e-payment options over cash or plastic cards.

Shoppers today have grown up in a hyperconnected world, with a wealth of information and services at their fingertips.

The Global Mobile Report from comScore shows more than 90 percent of millennials own a smartphone, and there’s little doubt that mobile devices are becoming this generation’s favorite shopping tool.

Visa Inc.’s 2015 Regional eCommerce Monitor Survey showed 22 percent year-on-year growth in mobile shopping across 13 markets in the Asia-Pacific.

As young people enter the workforce and begin to buy big-ticket items, they will appreciate flexible payment options from their payment providers and merchants alike.

It is this demographic that has driven the rise of Klarna, one of today’s leading providers of payment-by-installments services.

Klarna quickly realised that today’s digital consumers are highly sensitive to how quickly and easily they can make payments and that it needed to help merchants deliver on these expectations with a user-friendly interface and a smooth, speedy checkout process.

The company has now reached more than 45 million users and continues to expand across Europe and the United States.

As more people shop online, APM providers are certain to expand even further – helping cost-conscious shoppers make the purchases they want while still the enjoying speed and convenience of a digital transaction.

Sitting within the checkout page, these new services offer a fast and seamless shopping experience with no visible break in the customer journey.

What’s more, the majority of credit applications are approved within seconds, providing the instant feedback that has become so important to online shoppers.

Young consumers today are spoiled for choice, and unless merchants can deliver a suitably quick and flexible service, these shoppers will quickly take their custom elsewhere.

A slick design and smooth checkout process are not merely “nice to have” in this environment – they are essential.

With an entire generation of young shoppers beginning to consider their credit options, those merchants who offer digital-friendly flexible payment plans will be best placed to reap the long-term benefits.

In China, where consumers have a large appetite for technology and luxury goods, flexible payment plans are particularly in demand.

In 2013, Apple added an installment payment plan to its China website – a sensible move, considering that the iPhone 5 cost six weeks’ pay for the average employee in China.

Major players such as Apple, Huabei and Baitiao have also been joined by startups like Paymax, which offers installment plans to Chinese shoppers who can’t access traditional lines of credit.

The move toward installments is driven largely by the expense of traditional credit services and a desire to better manage cash flow, but it’s also a way for merchants to empower consumers by allowing them to purchase goods they would be otherwise unable to buy, with the added advantage of easy budgeting.

The benefits to merchants are evident in the regular income they receive, along with repeat custom and improved customer loyalty.

As the level of internet penetration across the Asia-Pacific increases, the attractiveness of installments will win over a growing proportion of young customers on the continent.

On a global scale, we’ve seen a growing adversity to credit as consumers are increasingly concerned about living beyond their means.

To add to this, being able to compare the price of a good from multiple retailers in a matter of seconds has made young shoppers more savvy about cost in general.

The option to pay by installments, repayments or when prices are fixed in advance means shoppers are less likely – and less tempted – to overspend.

In the case of companies such as Klarna that offer a less intimidating payment alternative, young consumers are attracted by the ability to make safer, simpler purchases.

Throughout the history of consumer borrowing, our purchasing preferences have changed with the advent of new payment types.

In each of these cases, those businesses that met shoppers’ new expectations moved forward with them while those that did not remained stuck in time.

Today, an entire generation of young people need a cost-efficient way to make purchases without running into credit troubles.

And while the concept of paying by installments is by no means new, the potential size of the millennial market has made adapting installments for the digital generation a natural next step for merchants in Asia and around the globe.

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Strategic Alliances Manager APAC, Global eCommerce, Worldpay

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