Payment in installments, blessing or disaster in the face of rising prices?

In the midst of increasing budgetary stress due to inflation, close to 6%, French families have, with payment in installments, a tool to spread their expenses over time. At the risk of consuming excessively and more, their difficulties increase. Overview of the strengths and limitations of these now ubiquitous offerings.

A trip, a sofa, a smartphone, even a simple pair of shoes… And also, for 2023, a train ticket. Today, almost everything can be paid in 3 or 4 installments: the split payment (PF) is everywhere.

One French out of three (1) has already chosen this solution for spread the payment for a purchase over 90 daysin 3 or 4 chances, and 22% plan to do it again in the next 12 months (2). It must be said that these proposals are particularly attractive: often free (for the consumer, not for the merchant) and without documents: there is no need to provide payments or account statements, just a bank card number to get the light green, usually within seconds.

An old product, resurrected by the health crisis

If we have never talked so much about split payment, it is not so much because of its novelty. The product has been offered for many years by specialized establishments, but its use has long been limited to physical companies, confirms Sergio Monteiro, founder of the specialized comparator CheckmonCredit.fr. Payments in 3 or 4 installments were mainly used as loss heads that facilitate contact with new customers. Bankers have only moderately appreciated this unprofitable product, which must have large volumes to be attractive. The advantage of split payment lies in the fluidity of the subscription and the fact that it integrates almost perfectly into the online purchase process. The challenge of volume and profitability remains very present, but it allows consumer credit players to effectively jump on the e-commerce bandwagon.

In recent years, the split payment has taken effect support the growth of e-commerce. Like him, he was energized by the health crisis and the various confinements. According to figures recently published by the ACPR (3), […] in the first quarter of 2021, compared to the same period of 2020, [la hausse] has reached, in volume of credits distributed, more than 40% for FPs […]. A boom that also corresponds to the emergence of new specialized players (the French Alma and Pledg, the Swedish Klarna, etc.), ready to respond to the strong demand of online sales sites.

The latter, in fact, love the split payment. Satisfy one of their main needs: immediate grant, which prevents the buyer from having time to abandon his purchase. Cart abandonment is a real scourge for the profession: 7 out of 10 carts, on average, do not result in a sale. Especially due to too long processes or lack of available payment options.

A double-edged sword for low-income families

To fulfill this promise of speed, split payment players have one asset: they don’t have to without obligation to verify creditworthiness of the client, i.e. his ability to assume his monthly payments, or if he is enrolled in the FICP, this file of the Banque de France that groups people who already have difficulty repaying their loans. When it is a small amount and repayable in 90 days maximum, it escapes, in fact, the limitations that govern the distribution of consumer credit.

Consequence: split payment can represent a remedy for financially vulnerable families, which could not obtain a classic consumer credit. The numbers suggest that is the case. According to a recent study In Banque/Next Content, in collaboration with Sopra Banking Software, the most modest families (less than 1,500 euros net per month for the family) are the most regular users: 22% of them use it often for his line. purchases, compared to 13% for all French.

There are always advantages and disadvantages in financial instruments, judge Jean-Louis Kiehl, president of the associative network Crsus, which accompanies families in financial difficulties. The split payment allows the most vulnerable families to access credit at a reasonable cost. But it also encourages them to consume excessively, although they should rather make a budget point. We see that families appear to have 5 split payments in progress and are no longer able to repay.

Risks of poorly controlled, even excessive debt

There is a somewhat sulphurous image and there is reality, nuance Jocelyne Amegan-Douaud, CEO of Django, a subsidiary of La Banque Postale Consumer Finance. According to figures from the Banque de France, less than 1% of overdebited cases are linked to split payments.

The regulator, however, is on alert. In mid-July, the ACPR published the results of an investigation on the subject. She refers to a high risk of poorly controlled debt, even excessive for the most financially fragile people. It also points to some current practices. Two in particular: the lack ofcreditworthiness analysis of the loan (let’s get back to it) and the the penalty cost in case of late payment.

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In the absence of verification of the financial situation of consumers, 11% of agreed split payments in 2020 resulted in one or more payment incidents, again according to the ACPR. A figure that is likely to increase even more with the economic crisis, which weakens a growing number of families.

gold, these incidents can be very expensive and make the difficulties even worse. Almost all players incur late penalties. In some (at least 3, according to the ACPR), they also far exceed those applied to other types of consumer credit, limited by the Monetary and Financial Code to 8% of unpaid deadlines.

A future European directive

For the French regulator of the financial sector, the case is understood: split payment should be better monitored. It is already expected: a new European directive on consumer credit, which integrates the FP, is being prepared. But it will not take effect for at least two years.

In the meantime, the ACPR invites the actors of this market to adopt, without delay, the measures to strengthen the protection of consumers: the respect of the rates of usury and the ceiling of the compensation of delay of payment, better information for the debtor on the nature of his commitment, an increased control. of solvency, consultation of the FICP…

Some actors are already showing their goodwill. This is the case of Django, launched last March by La Banque Postale Consumer Finance, which claims a citizen approach of split payment. To avoid the effect of accumulation, we limit their number to 1 or 2 per merchant and per period of 35 days, explains its general manager, Jocelyne Amegan-Douaud. We also refuse to finance food purchases. Django also requires dialogue with users: we notify them 5 days before each opportunity, which allows them to request a payment postponement, for example to wait for their salary to be paid.

While waiting for the creation of a frame, The best prevention, however, remains education. In the United States, a country where the split payment is devastating, especially among young adults, it is the social networks that take care of it. Like the influencer Madeleine White, who recently explained her large audience on TikTok: (…) It’s not because you can pay later that you won’t pay anything. $400 is still $400. And if you can’t afford to buy it all at once, maybe that means you shouldn’t buy it.

(1) Younited study conducted in July 2021, with MixFactory, an independent research institute, in 5 countries (France, Germany, Spain, Portugal, Italy) based on an online survey conducted on a sample of 2,500 people.

(2) 11th Barometer Cofidis Purchasing Power, produced in collaboration with CSA Research, July 2022. Read: French too short of 510 euros a month to live decently.

(3) Authority for Prudential Control and Resolution, regulator of the banking-insurance sector in France.

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