To different degrees, many fin-tech companies are testing new ideas or adapting concepts to new environments and seeing if they work.
Only once they leave the lab and enter the marketplace will they know for sure.
With Splitit, CEO Alon Feit believes he has an advantage because he has seen the model proven in several different countries.
Splitit is one company where the name describes the service. It enables a person making a major purchase to split the purchase into instalments using available space on an existing credit card.
Say the in-laws are flying in on Friday and they need somewhere to sleep. The Motel 6 is full (you checked — twice) and your spouse is giving you that hopeful (or insistent) look.
So you drive to your favorite furniture store and find a nice sofa bed for $1,800. You have to do it, but the thought of dropping that much at this time of year makes you nervous.
A $150 monthly payment for one year should be easier to swallow.
People in Israel, Brazil, Turkey, Argentina and Latin America have been doing this for as long as 30 years, Mr. Feit said.
“Depending on the country, between 35 to 57 percent of total credit card spending is such activity.”
Mr. Feit personally saw the success of this practice during his 20 years spent working in the Brazilian and Israeli payments industries.
“It was a unique phenomenon,” Mr. Feit recalled. “People needing to make expensive purchases but not wanting high APRs split them into instalment payments using their existing MasterCard or Visa.”
Had that option not existed, customers were limited to applying for retail credit cards and hoping they were approved, Mr. Feit explained.
Many were not. For those that were, if they missed one payment, they were hit with huge fines and high interest rates.
The process is simple, Mr. Feit added. When the customer swipes their card at a participating retailer, they choose the number of instalments. As long as they make the monthly payment, there are no interest charges.
“Fewer credit checks, it’s all good for the consumer,” Mr. Feit said. “It is free and easy.”
Merchants pay for the service, and they do not mind, Mr. Feit explained, because they enjoy higher customer conversion rates, purchase averages, and ultimately more sales.
“People say ‘where is the catch’,” Mr. Feit said. “There is no catch. Retailers want to facilitate the purchase for the customer.”
Card issuers are Splitit fans too, because it keeps more purchases with them and away from other payment options, Mr. Feit added.
“We were one of the first three companies to be invited to Visa’s fin-tech lab in London.”
While the instalment range tends to be between two and 12, it can be extended, Mr. Feit said. In Argentina people can have as many as 36 months.
Splitit simply uses existing unused credit space, Mr. Feit said. According to the latest Federal Reserve report available at the time of our interview in October at the Money20/20 conference, 73 percent of available credit lines go unused at any one time. That equates to $2.7 trillion in available credit space.
“It is a huge capacity,” Mr. Feit said.
Mr. Feit stressed he is not advocating for everyone to max out their credit card, but if someone has a clear need for a large purchase they may otherwise forgo and the pay off their card each month, Splitit enables them to safely make that buy.
Because it is an existing card, the cardholder has already been approved by the issuer and all needed underwriting has been completed, Mr. Feit said.