Layaway is cool again and Visa wants $ 1.2 trillion market share
Visa is the latest company to capture a share of the point-of-sale (POS) financing market, which grew 15% annually and reached $ 1.2 trillion in transaction volume globally in 2017, according to Euromonitor .
Financial products that allow consumers to put purchases like washing machines, bikes, and dresses on layaway or installment plans have proliferated over the past decade after a dramatic rise and fall in popularity over the past century. Affirm, led by PayPal co-founder Max Levchin, processed more than $ 2 billion in installment loans last year. It’s now accepted at every Walmart and has a valuation of $ 3 billion, according to PitchBook.
Sweden-based Klarna serves 60 million customers (largely concentrated in Europe) who want to pay in installments. After payment has 3.5 million customers and is used by one in four millennials in Australia, according to the company. JP Morgan recently announced it will offer a POS funding feature through the Chase mobile app. MasterCard acquired Vyze in April to continue the same market.
Yet the point-of-sale finance market remains fragmented, says Sam Shrauger, SVP and global head of issuer and consumer solutions at Visa. In the United States, most merchants don’t offer installment plans, and no financial or tech company dominates the space. Visa wants to change that. Through a type of software architecture called application programming interfaces (APIs), Visa enables merchants to access its technology and enable features in their credit card scanning machines that would allow consumers to pay. their purchases in installments before, during or after the time of purchase. .
Visa’s banking partners, who issue all Visa-branded cards and hold the resulting loans on their balance sheets, will always control the loans, dictating the period for payment of down payments, interest rates and late fees. Since its inception in 2009, Affirm has built a business on features such as no late fees and fee transparency. Banks using Visa’s platform are unlikely to offer the same benefits, and Visa has no control over this. “What is communicated and how it is communicated is not the role we play,” says Shrauger. “We are a technological platform.
Visa declined to disclose whether or how it would make more money when consumers chose to pay in installments. One possibility would be to add additional fees for traders. In 2018, Visa collected approximately $ 25 billion in revenue from transaction processing. Another option would be to offer the remittance feature to merchants for free, on the pretext that it will stimulate consumers’ interest in using their Visa card, thereby increasing the volume of transactions (and fees) for Visa.
In the United States, Visa is testing the installment plan functionality with CyberSource, a payment processing company it acquired in 2010. Overseas, banks like Kotak Mahindra Bank in India and ING Bank Romania are testing it. Sam Shrauger declined to say if any US banks are piloting it. Visa plans to make the product more widely available in January 2020.
Later this year or early next year, JPMorgan will be offering POS financing without the help of Visa, MasterCard, or any other card network. Once a Chase cardholder has made a purchase, they can log into the Chase app and decide that instead of letting the purchase fall onto their revolving line of credit, they will pay it off in installments. The activation of this feature will be done on JPMorgan’s own technological tracks.
Larger credit card issuing banks, like Bank of America, could follow a similar path, given that some have tens of millions of active mobile users. The point-of-sale financing market is therefore effectively fragmented, and will likely remain so for the foreseeable future.