The economic uncertainty brought on last year by the coronavirus pandemic has given a lift to the point-of-sale installment lending trend, with payments giants like PayPal Holdings Inc. jumping into a market that has been pioneered by fast-growing buy now, pay later startups like Affirm Inc., Afterpay Ltd., Klarna AB, Sezzle Inc., and Splitit Payments Ltd. Now some of these companies are starting to bolster their position in the market by clinching deals with the major card networks.
The latest such tie-in came to light Thursday with an announcement from Sezzle and Discover Financial Services that its users will be able to pay in installments through the Discover network at certain U.S. merchants.
Information was not immediately available on how many locations will be enabled for the service. The joint news release indicates merchants will be able to process the transactions with “little to no upgrades to their existing payments systems.”
“Our partnership with Discover will help to further accelerate our business-development efforts by connecting our team with Discover and its established relationships,” said Paul Paradis, an executive director and president of Minneapolis-based Sezzle, in a statement. The 5-year-old company says 2.2 million “active” consumers can use its platform to split purchases into installments at both online and physical stores.
The buy now, pay later (BNPL) market has grown quickly over the past year as consumers seek out ways to stretch their money in the face of layoffs and other economic stresses brought on by Covid-19. Generally, the service offers the option of splitting a purchase at the point of sale into four interest-free installments. Such lending is expected to account for 11% of all unsecured credit this year, compared to just 5% in 2015, according to investment firm Keefe, Bruyette & Woods. The market is responding accordingly. Affirm, which last month went public at $49 per share, was trading Thursday morning on the Nasdaq at $106.
Payment networks increasingly see the fast-growing category as a vital service. “We know that providing [merchants] with additional payment options, such as a buy now, pay later structure, can be beneficial, especially in the current economic environment,” said Jason Hanson, senior vice president of global business development and acceptance at Discover, in a statement. “We are able to leverage our unique technology capabilities and vast network of merchant relationships to provide Sezzle the ability to grow its business and provide new payment opportunities.”
In September, Mastercard Inc. linked with processor TSYS, a unit of Global Payments Inc., to create installment choices for cardholders. Visa Inc. in 2019 rolled out an installment payments API that Splitit began testing in October.