Visa Enables Installments: What Does It Mean for Businesses?

Buy now, pay later services are installment-based payment schemes that have experienced a surge in popularity over the past few years and have become a prominent part of modern eCommerce. In fact, BNPL hit $1.6 trillion in global market value in 2020, showing a 5% year-over-year increase and outpacing credit card expenditure which declined by 4% during the same period¹.

Thus, it comes as no surprise that Visa, the world's second-largest card payment organization, could not miss out on this promising market and launched its own BNPL solution. Find out what makes the Visa Installments platform stand out and understand how it can influence merchants and businesses.

How Does the Visa Installments Solution Work for Consumers?

The main goal of Visa Installments is to provide consumers with an additional convenient payment option at checkout. Let’s take a closer look at how this service works for shoppers during the purchase:

1. A consumer with an eligible Visa card proceeds to the checkout page at a retailer’s site.
2. The client selects the Visa Installments option and chooses one of the available payment plans, which enables them to pay for their order in equal parts over the course of several months.
3. The customer agrees to the plan terms and follows the prompts to complete the purchase.

The consumers can also select Visa’s BNPL option pre-purchase (while they are still browsing for items to buy) and post-purchase (by converting a recent card transaction into installments).

Visa’s API Model for a Smooth Shopping Experience

As mentioned above, there are three main installment payment models: pre-purchase, during-purchase, and post-purchase. These models vary depending on such factors as:

• The timing when the shopper is offered installments
• The payment plans
• The parties responsible for the costs of providing credit

Aside from that, there are other customizable elements of Visa Installments available to financial institutions and merchants via APIs, namely:

1. Plan Creation

Every financial institution that opts in to Visa Installments is responsible for managing its own installment program. Hence, Visa provides issuers with an API that enables them to customize such payment plan attributes as:

• Duration of the loan
• Participating merchants and cards
• Interest rates and fees

2. Eligibility Check

With Visa, merchants, technology platforms, and acquirers can use an API to look up eligible installment plans for a transaction. For instance, they can check the eligibility of a 4-month BNPL loan for all Visa Signature cards from Bank X at clothing stores.

Once suitable options are found, merchants can display these installment plans to consumers during purchases.

3. Plan Selection

Visa offers an API that enables a merchant to confirm an installment plan the cardholder selected for a given transaction.

4. Plan Conversion

This API enables issuing banks to convert a regular transaction into an installment plan post-purchase.

5. Plan Scheduling

Another API offered by Visa enables issuers to make a payment schedule. It will determine the cardholder status and calculate monthly installments that are due for better general ledger management and correct posting to the cardholder statement.

Advantages of Visa Installments

Aside from the general benefits linked to payment method diversity, the Visa Installments system features additional advantages for everyone involved in the payment process:

• For the consumers, it is a reliable and convenient payment option that enables them to avail of products without delay instead of spending months on saving up for them.
• Merchants get an opportunity to attract clients of different income levels and effectively boost conversion rates.
• Financial institutions get increased cardholder engagement and loyalty, as well as a new revenue stream.
• The acquirers receive support against volume erosion and get a new value-added service to offer merchants.

It’s clear that the Visa Installments service has plenty of benefits, but are there any risks associated with the integration of this system?

Potential Downsides of Visa’s BNPL Solution

Due to the fact that Visa Installments is not offered to the general public through many channels yet, it is hardly possible to point out its downsides. However, the potential challenges can be forecasted by using the experience of Visa’s primary peer, Mastercard Installments, as a point of reference.

Here are some drawbacks lenders and merchants using Visa Installments could potentially face:

• System integration costs. Making adjustments to existing payment portals can be a costly endeavor for merchants due to additional personnel, OS or payment terminal changes, or other unforeseen expenses. While it is still unknown how much the Visa Installments system integration will cost, extra expenses could be regarded as a downside by businesses.
• More complex implementation. Parsing payments can lead to increased vulnerability to fraud, which calls for additional protection measures and more intricate terms of purchase.
• Possible additional fees. BNPL chargebacks are not a common issue, yet they can’t be disregarded completely. Thus, when getting on board with Visa Installments, merchants will have to take this risk into consideration and have a plan on how to avoid potential fees.

Keeping the possibilities of such drawbacks in mind is sure to set up your business for success when adopting Visa’s BNPL solution.

Bottom Line: Will Businesses Benefit from Visa Installments?

All in all, the Visa Installments system is expected to be of great assistance to merchants and lenders in meeting consumer demand for BNPL solutions and payment method diversity. However, it is essential for businesses to develop a thorough strategy to deal with the platform’s potential challenges before integrating it.

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