The future of financing comes in the form of just three easy installments

Fintech firms are starting to jump aboard the idea of payment plans for something as small as a sweater.


October 1, 2019

The layaway plans of yesteryear are baaaaaack… sort of. Fintech firms like Affirm Inc., Afterpay Touch Group Ltd., and PayPal Holdings Inc. have started offering plans that allow people to pay for purchases in installments.

While this financing model used to be reserved for big-ticket purchases like TVs and washers, it’s becoming more common for smaller goods like clothing and home decor.

Being middle class is more expensive than ever

The costs of middle-class markers like higher education, cars, and home ownership have shot up in recent decades. Wages, meanwhile, have remained relatively stagnant.

For many people, large chunks of their take-home pay are immediately spoken for… and more people are relying on borrowing for everyday purchases. Consumer debt — which doesn’t include mortgages — has topped $4T.

But having lived through a major recession, many young adults balk at carrying credit card balances. This makes installment plans a more appealing option. 

How is this different from using a credit card?

The big difference is that consumers typically know upfront exactly how much they’ll be paying for each item — say, four monthly payments of $32.

With credit cards, consumers pay off the amount by their next billing date or carry a balance, which can last indefinitely and rack up big interest if they make only minimum payments. 

That’s not to say installment plans don’t come with their own costs. The “easy” monthly payments are sometimes calculated to include super-high interest rates, and some firms charge hefty fees for missed payments. 

Look for installments to take off

By showing that an item is attainable through payment installments, retailers hope to coax customers into spending more.

A recent survey showed that more than half of retailers offer or plan to offer installment plans by next year, including Walmart and Urban Outfitters.

Meanwhile, the fintech firms powering these transactions are seeing big paydays. Affirm’s point-of-sale loans doubled to $2B last year, and it expects to double them again this year.

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