Retailers know consumer spending has changed during the health pandemic: Shoppers are buying less and they’re buying online.
But a new study from Splitit shows that in addition to what they’re buying, consumers are also adjusting how they are paying for items.
The study looked at hundreds of thousands of transactions between March 15 and April 10, 2020, then compared it to data from the previous 12 months. The financial service firm observed that consumer efforts to conserve cash resulted in a 20% shift towards paying with credit cards, instead of with debit cards.
That contrasts with previous spending studies that showed millennials and Gen Z-ers favored debit cards. Afterpay’s recent spring trends report found that 90% of Australians avoided credit cards out of choice, while 54% of American users were scared of taking on too much debt with a credit card.
Splitit CEO Brad Paterson said this shift means there are opportunities for retailers to better serve their customers — and generate additional revenue.
“It’s essential for businesses to respond to what consumers are asking for, which are more ways to responsibly manage cash flow,” said Paterson. “There is an opportunity for the payment industry to help consumers manage their finances without saddling them with more long-term debt, empowering them to better control and use the credit they have and take ownership of their expenses.”
The Splitit report also found that consumers were opting to pay for purchases over an average of seven installments, instead of the previous five. The greater the number of installments, the smaller each payment can be, which helps customers budget better.
Paterson said the new data supports previous findings that leveraging payment installment plans can increase conversion rates and average order values.
Splitit differs from some of its competitors in the space — such as Klarna and Afterpay, for instance — in that it enables customers to divide payments in as many as 12 installments, instead of a fixed four. It also requires that customers have available credit for the total sum of the order at the point of purchase, in order to be approved for an installment payment plan.
“Help your customers see early, such as on product pages, that they have flexible ways to pay over time,” said Paterson. “It’s important that retailers offer responsible ways to purchase, which in our view means not extending new credit or loans at the moment of purchase. Instead, help consumers more responsibly manage their cash flow against their own credit.”