Jack Dorsey attacks Max Levchin’s consumer credit business

Shoppers love to browse online, but somewhere between filling their cart and checking out, they change their mind. In 2016 alone, consumers left $ 4.6 trillion worth of abandoned merchandise in their carts, according to Business intern.

Retailers want to reduce this painful number and are looking to installment loans as a potential solution. In the United States, consumers who buy a mattress from Casper or a bicycle from Peloton can choose “Buy with Affirm,” a financing option that divides the total cost into a series of monthly payments, plus interest.

In Europe, online installment loan financing is now ubiquitous thanks to Klarna, a Swedish company that handles 450,000 transactions per day. Affirm and Klarna pay the retailer in full at the time of purchase.

Now Square, led by Twitter CEO Jack Dorsey, is looking for a piece of the action. This week the payment company unveiled a pilot installment loan program for small businesses that use its invoicing software. A couple planning a wedding, for example, might opt ​​for a Square loan after receiving an invoice from their florist. The florist is paid immediately and the bride and groom pay the bill in three, six or twelve months.

Unlike CEO Max Levchin’s Affirm, Square won’t vary the interest rate it charges based on a consumer’s credit history. Instead, all consumers approved for a Square loan will pay an APR of 9.99%. Loan amounts will vary from $ 250 to $ 10,000. For now, Square will keep the loans on its balance sheet and assume the risk of default. (Many online lenders package their loans and sell them to outside investors.)

The installment loan product allows Square to simultaneously establish a direct relationship with consumers, while continuing to serve the small business owners who represent its core base. Earlier this year, the company unveiled a prepaid debit card, another indication of its ambitions with consumers.

Affirm’s track record suggests Square merchants could see an improvement if consumers accept the loans. In announcing its 1 millionth installment loan last April, Affirm said its retailers were seeing conversion rates increase by up to 20%. Order values ​​and revenue per visitor are also increasing on average.

Square’s loan product, because it is invoice-based and not a checkout basket, will not produce all of these same benefits for merchants. But it has the potential to help them get paid faster – which for a small business can make all the difference.


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