Chinese installment payment use on rise: LexinFintech report

LexinFintech Holdings (NASDAQ: LX), an online consumer finance technology platform for educated young adults in China, today released its “2017 Installment Shopping Behavior Report.

The use of installment payments is on the rise in China and will continue gaining in the next few years, becoming a new engine for domestic consumption. The “2017 Installment Shopping Behavior Report” was published by Lexin with support from partners including: Apple, Vivo, Oppo, Xiaomi, Dell, L’Oreal, P&G, Midea, Chow Tai Fook, and Cabbeen.

There has traditionally been a huge gap between the current income of most young people in China and their demand. Now, more young consumers in China are gaining credit. Along with this expansion of consumer credit, the concept of making purchases on an installment basis is increasingly seen not just as a way to satisfy an urgent need, but as a normal shopping method.

As a result, installment payment systems are not only providing convenience to consumers, but are also becoming a tool to stimulate domestic demand. It can also accelerate local consumption by helping consumers enhance their purchasing power and ability to pay. As growing enthusiasm for installment payments reflects people’s expectations for the future, it can also be seen as a barometer for the national economy.

The report found that usage of installment payments in China is changing in four key ways:

  • Sporadic to regular: Installment payment usage is shifting from a low-frequency form of consumption previously, to a high-frequency form of routine consumption. The annual average number of orders per user paid for by installments on Lexin’s Fenqile platform has increased in each of the past three years, to 11.2 in 2017, from 10.6 in 2016, and 7.2 in 2015.


  • Large to small: Increasingly, installment payments are shifting from the one-off purchase of bigger items, to smaller purchases. In past, installment payments were used predominantly for high-priced consumer goods, such as computers and smartphones. Installments are no longer limited to these traditional categories, and are increasingly involved in all aspects of life including beauty care products, shoes, and apparel. Lexin’s Fenqile platform had 720,000 SKUs for 14 categories of consumer goods available for payment by installments, as of the end of September 2017.


  •   Low Income to High: Usage of installment payments is moving from relatively low- income earners with urgent needs, to those with higher incomes, for shopping convenience. Higher income consumers, with mid-to-high consumption ability, now make up almost 42 per cent of the users on Lexin’s Fenqile platform. The reasons cited by users for making installment payments also highlight this shift. A primary reason users chose installments was to “reduce the economic pressure from a one-time payment” according to 43 per cent of Fenqile users surveyed. The second most important reason, however, was a desire to “build credit,” with nearly 35 per cent of users choosing this option, reflecting the desire of higher income earners to establish a strong track record of responsible credit use, rather than as a way to make a large, urgent one time purchase.


  •  From Large Coastal Cities, to Interior: The pattern of installment payment usage is moving from the large first-tier cities of China’s coastal region, to the second- and third-tier cities of China’s interior. The top five provinces for installment orders were Guangdong, Jiangsu, Shandong, Hubei and Henan, respectively. Among the top five areas with the fastest growth in installment payments, however, three of them were interior regions such as Inner Mongolia, Xinjiang, and Gansu, all of which saw installment usage more than double.

Use of installment payments is most prevalent among consumers between 20-30 years old, Lexin’s survey found. Those born after 1990 account for 86 per cent of Fenqile users, while those born in the 1970s or 1980s account for just 13 per cent.

Consumers born after 1990 like installment payments because these buyers are generally more dependent on mobile Internet as a method of shipping, Lexin’s survey found. These younger consumers have very personalized preferences, and they are also willing to pay more for the brands and products they like, and installment payments can help them do this.