As credit card transactions decline, will installment loans fill a niche or earnings ladder?


Credit card industry data points to a decline in credit card spending, making Visa’s recent launch of an installment buying platform impressive. As the credit card industry goes through the COVID-19 recession, Visa’s decision to integrate a Buy It Now and Pay Later (BNPL) platform creates a timely option for consumer credit .

First, think about declining credit card volumes

In the United States, digital transactions NotedThree of the country’s largest banks reported on Tuesday that their credit card purchase volumes fell more than 20% in the second quarter as the Covid-19 pandemic dampened the economy, even though things were doing better on the debit card side. For the main issuers:

  • New York-based JPMorgan Chase & Co., America’s largest credit card issuer, reported $ 148.5 billion in credit card sales volume, down 23% from 192.5 billion. billion dollars in the second quarter of 2019.
  • Meanwhile, Chase town rival Citigroup Inc. said purchases on its North American-issued general-purpose credit cards fell 21% year-on-year in the second quarter to $ 74 billion. dollars. Purchases on Citi’s large retail card wallet fell 25% to $ 17 billion.
  • And Wells Fargo & Co. said the volume of consumer credit card purchases fell 22% from $ 15.8 billion a year earlier and 13% from the first quarter. Wells debit card point-of-sale volume, at $ 93.1 billion, remained stable from a year earlier, although transactions fell 13% to $ 2.03 billion.

Across the Pond, UK, BBC Noted:

  • A total of £ 8.7bn was spent on credit cards in the first full month of foreclosure in April, half the level in April last year, UK Finance said.
  • The banking trade body said it was the lowest level of spending seen since the last economic downturn.
  • One of the likely reasons for the downfall is the cancellation of vacation plans.

Now think about the new Visa platform

Visa announced an installment solution that could compete with the fintech model and offer traditional credit card users the ability to create installment loans outside of the reach of their credit cards.

  • COVID-19 has accelerated a unprecedented transition to technology for consumers seeking the convenience, speed and security of digital technologies, from online shopping and online shopping to pay, curbside pickup and in-app purchases.
  • You can add installment payments to this list. Paying in installments or having the option of paying in a fixed number of equal payments for something at the point of sale is the latest convenience offered by Visa and welcomed by a majority of American millennials.
  • Visa’s installment solutions are becoming a key part of Visa’s strategy to help our customers and partners provide eligible consumers with more flexibility to pay simply using their existing Visa credit cards at checkout.
  • Installment payments are attractive to sellers, with many seeing an increase in average note size and average conversion rate when installment payments are available as a payment option at checkout.

The offer comes out of the door with a strong positioning; Visa defines its strategy in detail here.

  • TSYS, the Global Payments Issuer Solutions business, will be the first technology partner of issuers to offer Visa’s new point-of-sale payout solution where participating financial institutions can offer payout plans for their cardholders. Commercial bank is the first bank in the United States to launch the Visa Commerce Bank Limited Payout Credit Card Pilot Project, with a commercial launch in fall 2020.
  • ChargeAfter is the first partner to launch Visa remittances in the United States with two clients, Photo of 42nd Street and Tire agent, which now offer Visa’s installment solutions to their eligible U.S. buyers.
  • ChargeAfter also works with Cybersource, Visa’s global payment management platform, to deliver installment payment capabilities to Cybersource sellers around the world.

Now is an exciting time for credit cards as consumers adjust to an uncertain world, and Visa’s game in installment loans could prevent traditional bank financing from shifting to nonbank and fintech offerings. The model will not work in all categories of credit card spending, but there will be areas where the process finds its way.

Preview by Brian riley, Director, Credit Advisory Service at Mercator Advisory Group