With consumer debt on the rise, buy-now-pay-later programs are becoming increasingly popular — revenue from splitting larger purchases into payments rose by 21% on Cyber Monday.
Earlier this month, Citizens Pay bank expanded its point-of-sale financing service to Microsoft ( (MSFT) – Get Microsoft Corporation Report) — visitors to Microsoft.com will be able to finance not only big purchases like a computer but also medium ones like accessories and software subscriptions.
“We focus on medium to larger purchases starting at a couple of hundred dollars,” Citizens Pay President Andrew Rostami told TheStreet. “Those are the purchases that consumers [want to] split into payments because they’re a little chunkier.”
But is splitting payments on everyday items the most effective way to navigate big purchases? Rostami talked to us about the rising popularity of BNPL, responsible spending and what industries Citziens Pay hopes to enter into next:
Why, in your opinion, are BNPL programs becoming more popular?
It can be a responsible option for consumers because it is a fixed monthly instalment plan and you have clear transparency of what you’re paying over the life of the loan. Compare that with a credit card where you don’t exactly know how much you’re going to pay and are sometimes only paying the minimum payment. A lot of conscious consumers have gravitated to the product because it helps them pay off their bills. But all of that said, it’s important to do it responsibly.
How does one do it responsibly? Is there a point at which you have to say that you simply can’t afford something (instead of splitting it into payments)?
There are a couple of things to think about and one of them is size of purchase. If it’s a really small purchase or a purchase you’re going to have every month, like groceries, it probably doesn’t make sense. It really should be a once-a-year or twice-a-year type of purchase like furniture or children’s orthodontics. For those types of things, it might make sense to spread it out over the course of six to 12 months because the alternative is putting it on a credit card and taking higher interest and 36 months to pay it off.
Does it ultimately come down to the consumer making that call?
Yes but with that said, we do checks because sometimes it’s a little hard for the consumer to do it themselves. We’ll look at things like your debt-to-income ratio, what additional debts you have and your income just to make sure you have enough income to cover all your debt payments.
Are there other industries or areas where Citizens Pay hopes to offer financing in the future?
We started in electronics and have an incredible set of partnerships with Apple ( (AAPL) – Get Apple Inc. Report), Microsoft ( (MSFT) – Get Microsoft Corporation Report) and Vivint Home Security ( (VVNT) ). We’ll continue to launch new electronics partnerships because it’s a really important category for us and important category for consumers since those tend to be higher-ticket prices. We will also continue launching partnerships with new channels such as speciality retail like sporting goods and furniture as well as growing into the healthcare space because we do expect continued growth there.