Splitit is financing purchases for debit cardholders
- More payments will start to be debited directly from consumer bank accounts unless interchange fees drop dramatically
- It might be decades before credit cards disappear, but different industries are already seeking ways to sidestep the fees that come with today’s credit card payments
Splitit, a competitor to lending companies like Affirm and Klarna, is bringing its point-of-sale financing product to debit card users in the U.S. and Europe, targeting fashion and jewelry websites in particular, like Vestiaire Collective and Philip Stein. Unlike its competitors, however, the company is focused on making the retail industry better for everyone involved — banks, processors, consumers and merchants — rather than displacing credit cards, said Gil Don, CEO of Splitit. “We always look to stay on the same rails the merchant is using when it comes to credit and debit card processing,” Don said. “It will be more than 30 years before credit cards ago away. … We don’t take business from the banks, and we support the existing system.” It might be decades before credit cards disappear, but different industries are already seeking ways to sidestep the fees that come with today’s credit card payments. Earlier this week a new alliance of the global airline industry and Deutsche Bank said it will create an electronic real-time payment system for plane tickets that would save carriers billions in transaction fees and rival credit card groups. Further, credit card delinquency rates are at their highest since 2012, with card loans at least 90 days past due at March 31, according to recent data by TransUnion. Debt-conscious millennials continue to choose debit cards over credit, even in the age of Chase Sapphire Reserve. One in three U.S. millennials carry plastic cards, and they have a greater tendency to be debit or prepaid cards and; consumers in the 18-to-24 age bracket prefer cash above other payment methods. Credit cards may continue to dominate online purchases, but Don said more payments will start to be debited directly from consumer bank accounts “unless the prices of interchange drop dramatically.” Interchange fees are typically a percentage fee of the volume of the sale, and a per-transaction fee. Splitit makes money by charging its merchant partners a service fee similar to the standard interchange fee. Similarly to Affirm, Splitit sees an opportunity in consumers buying lower-ticket items; rather than catering exclusively to those wanting to finance purchases between $400 and $1,000, it’s targeting the demand from debit card users purchasing items in the $80 to $150 range. Customers pay the purchase off in three equal monthly installments. Splitit doesn’t charge interest or late fees, and it doesn't run credit checks. Competitors charge up to 30 percent for their own short-term POS loans. Rather than checking credit scores, the company uses alternative data based on “publicly available information” to assess the risk of each consumer against its fraud detection and alternative credit scoring systems. Splitit takes on the risk, which it assumes is low based on the low dollar value of the purchase, but the liability for the payment remains with the bank that issued the customer’s debit card, Gil said. Splitit is yet another player in the increasingly crowded market of companies offering loans for purchases at the point of sale, which includes Affirm, Klarna, Bread, Vyze and GreenSky, which recently announced a forthcoming $1 billion IPO. These companies have been particularly popular among fashion retailers currently facing the pitfalls of selling through third-party merchants: brand erosion and discounting. Last month Affirm said fashion and apparel brands typically see a 51 percent increase in cart size and a 96 percent increase in repeat purchases when shoppers use Affirm versus credit cards.