In the midst of mounting budgetary stress due to inflation, close to 6%, French households have, with payment in installments, a tool to spread out their expenses over time. At the risk of over-consuming and further increasing their difficulties. Overview of the strengths and limitations of these now ubiquitous offers.
A trip, a sofa, a smartphone, even a simple pair of shoes… And even, by 2023, a train ticket. Today, almost everything can be paid for in 3 or 4 instalments: split payment (PF) is everywhere.
One in three French people (1) has already chosen this solution for spread 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 offers are particularly attractive: often free of charge (for the consumer, not for the merchant) and without paperwork: no need to provide payslips or account statements, a bank card number is enough to obtain the green light, usually within seconds.
An old product, revived 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 businesses, confirms Sergio Monteiro, founder of the specialized comparator CheckmonCredit.fr. Payments in 3 or 4 instalments were mainly used as loss leaders that facilitated contact with new customers. Bankers only moderately appreciated this unprofitable product, which requires large volumes to be attractive. The advantage of split payment lies in the fluidity of the subscription and the fact that it integrates almost seamlessly 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, split payment has taken effect supports the growth of e-commerce. Like him, he was energized by the health crisis and the various confinements. According to figures recently released by the ACPR (3), […] in the first quarter of 2021, compared to the same period of 2020, [la hausse] 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 meet the strong demand from online sales sites.
The latter, in fact, love split payment. It meets one of their major requirements: instant granting, which prevents the buyer from having time to abandon his purchase. Shopping cart abandonment is a real scourge for the profession: 7 out of 10 shopping carts, on average, do not result in a sale. Especially because of too long processes or lack of available payment options.
A double-edged sword for low-income households
To fulfill this promise of speed, split payment players have an asset: they don’t have to no obligation to check creditworthiness of the customer, that is to say his capacity to assume his monthly payments, or if the latter is registered with the FICP, this file of the Banque de France which groups together people who are already having difficulty repaying their loans. When it is of small amount and repayable in 90 days maximum, it escapes, in fact, the constraints that govern the distribution of consumer credit.
Consequence: the split payment can represent a remedy for financially vulnerable households, who could not obtain a classic consumer credit. The numbers suggest that is the case. According to one recent study In Banque/Next Content, in partnership with Sopra Banking Software, the most modest households (less than 1,500 euros net per month for the household) are the most frequent users: 22% of them often use it for their purchases online, compared to 13% for all French people.
There are always advantages and disadvantages in the financial tools, judge Jean-Louis Kiehl, president of the associative network Crsus, which accompanies households in financial difficulties. Split payment allows the most vulnerable households to access credit at a reasonable cost. But it also encourages them to over-consume, even though they should rather make a budgetary point. We are seeing households appear that have 5 split payments in progress and are no longer able to repay.
Risks of poorly controlled, even excessive debt
There is the somewhat sulphurous image and there is the 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 over-indebtedness cases are linked to split payments.
The regulator, however, is on alert. In mid-July, the ACPR published the results of a survey on the subject. She refers to a high risk of badly controlled debt, even excessive for the most financially fragile people. It also points to certain current practices. Two in particular: the lack ofborrower creditworthiness analysis (we come back to this) and the cost of penalties in the event of late payment.
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In the absence of verification of the financial situation of consumers, 11% of split payments agreed in 2020 resulted in one or more payment incidents, again according to the ACPR. A figure that is likely to increase further with the economic crisis, which is weakening a growing number of households.
Gold, these incidents can be very expensive and further aggravate the difficulties. Almost all players charge late penalties. In some (at least 3, according to the ACPR), they even far exceed those applied to other types of consumer credit, capped by the Monetary and Financial Code at 8% of unpaid due dates.
An upcoming European directive
For the French regulator of the financial sector, the case is heard: split payment must be better supervised. It is already planned: a new European directive on consumer credit, integrating the FP, is in preparation. But it will not come into force for at least two years.
In the meantime, the ACPR calls on players in this market to adopt, without delay, measures to strengthen consumer protection: compliance with wear rates and the ceiling on late payment compensation, better information for the borrower on the nature of his commitment, 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 to split payment. To avoid the accumulation effect, we limit their number to 1 or 2 per merchant and per 35-day period, explains its general manager, Jocelyne Amegan-Douaud. We also refuse to finance food purchases. Django also demands dialogue with the user: We notify him 5 days before each opportunity, which allows him to request a postponement of payment, for example to wait for his salary to be paid.
Pending the establishment of a framework, the best prevention, however, remains education. In the United States, a country where split payment is devastating, especially among young adults, it is the social networks that take care of it. Like influencer Madeleine White, who recently explained her large audience on TikTok: (…) Just because you can pay later doesn’t mean you won’t pay anything. $400 remains $400. And if you can’t afford to buy it all at once, maybe that means you shouldn’t buy it.
(1) Younited study carried out 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 Cofidis Purchasing Power Barometer, produced in collaboration with CSA Research, July 2022. Read: French people too short of 510 euros per month to live decently.
(3) Authority for Prudential Control and Resolution, regulator of the banking-insurance sector in France.