Citizens Bank sees point of sale credit getting 'close' to credit, debit cards in usage

Part of the coronavirus’s economic story is the sudden boom in installment payment services — a sure sign of consumers and merchants wanting a haven from revolving debt. But the rush to simpler credit is also a reflection of how the crisis has changed the way people are living and managing their lives.

“We all remember the furniture deals. Zero percent for 50 months. But it’s now about a lot more. It’s about home improvement, medical services and apparel,” said Andrew Rostami, executive vice president and head of unsecured lending and cards at Citizens Bank. “The pervasiveness is coming fast.”

Fintechs, many of which formed in the wake of the 2008 financial crisis, are riding the wave of point of sale credit in 2020. Companies like Klarna, Splitit and Affirm grew gradually in the past few years, often gaining ground in Europe in anticipation of a U.S. move.

The pandemic has given these point of sale credit firms a boost, with triple-digit gains in just a few months this spring. Citizens did not disclose its volume in lending growth, saying only that there’s been substantial expansion in the types of consumers, merchants and products that are now part of the bank’s installment lending program.

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Point of sale credit is on pace to be as common as debit or credit purchases, Rostami said. “It’s not there yet, but we’re close.”

The growth reveals a seismic shift in how point of sale credit is used. Beyond a major one-off purchase of an appliance, it’s becoming a go-to financing tool for both merchants and consumers, Rostami said. “We’re seeing a lot of installments for fitness equipment, learning supplies for at-home school; there are more purchases in small categories that people want to be able to pay over time."

Citizens also has seen a growth in transactions through its partnerships with at-home or mobile technology providers such as Apple and Microsoft.

The jump in point of sale credit, also referred to as buy now/pay later or installment credit, comes as credit card debt declines. As point of sale credit goes mainstream, lenders are gaining a brighter spotlight, often in the form of investments and partnerships that show acknowledgement of the model from traditional credit card companies.

Affirm recently entered a deal with Shopify to gain access to about 1.2 million sellers, and is reportedly planning an IPO that could value the company as high as $10 billion.

Splitit earlier this summer gained access to Mastercard’s merchant network, and Klarna this spring drew investment from Ant Group.

The product category has extended to new companies, as all-in-one card company Curve added an installment option that works with its “back in time” feature that allows past purchases to be moved to different cards. This month, JetBlue used its partnership with Goldman Sachs to launch point of purchase credit for airline bookings.

A generational shift is driving the trend as well, as younger consumers are drawn to installment loans, which can potentially make an individual purchase more appealing by tying it with the financing.

Beyond serving consumers and merchants anxious about the pandemic's economic impact, point of sale credit has gotten a boost from cloud delivery that aids in the fast determination of credit decisions. Writing for PaymentsSource, Jifiti general manager Nufal Segal said the latest incarnation of point of sale terminals support mobile payments, credit cards and cash, as well as improved access to financial and payments data that determine the borrower’s strength. “Cloud technology has been a pivotal extension of POS capabilities, ensuring data is accessible from the retailer’s smartphone or tablet wherever they are,” Segal said.

“Our internal research shows consumers don’t want to open another credit card because of anxiety about gaining debt they can’t pay,” Rostami said. “They see installments as a way to ensure they can pay that loan off.”

As part of its pandemic response, Citizens has used the data from its installment lending and payments volume to showcase its other merchant services, such as helping merchants think through decisions on inventory projections — or sharing the shifts in consumer preferences.

“If I’m a merchant, how do I build in more ancillary revenue streams that have higher margins?” Rostami said. “There’s a lot of volatility in inventory right now.”

Point of sale credit is still consumer debt, drawing regulatory pressure in Klarna's home country of Sweden, which has required merchants to present other options before debt.

Point of sale credit or installments tied to a specific purchase offer more clarity over the amount of debt and the repayment schedule, Rostami said.

“People don’t want to open a credit card just to pay for a specific item. There’s an aversion to that,” he said.