Credit Card or DIP?

Credit Card or DIP?
Credit Card or DIP?

Credit card debt continues to rise, according to U.S. personal financial information company NerdWallet, but a recent newcomer is also beginning to make its mark with consumers. That newcomer is digital installment plans or DIP.  CivicScience, a U.S. market research, and intelligence firm revealed that the popularity of interest-free digital payment programs jumped from 24% in the first quarter of 2019 to 30% by the third quarter of last year. The company said its popularity was largely among budget-conscious younger consumers like millennials and Gen Z.

What This Means for Retailers

Digital payment programs allow consumers to make purchases and then pay for them over a period of time while incurring no interest charges at all. While this may suggest more major purchases, Payfort, an Amazon company, Sezzle, and Afterpay are the three companies currently offering this in the U.S. One might assume that an interest-free program would reap more major purchases, but Paul Paradis, the co-founder of Sezzle, told e-Marketer that their average order is $80. He added that this may mean more consumers moving away from credit cards or not even having any.

Afterpay’s Ben Pressley agreed. He said the Federal Reserve recently disclosed that about 66% of millennials don’t even have credit cards. As if to echo Paradis, Pressley also added that Afterpay’s average purchase is $125.  Data from CivicScience last October supported Paradis’ claims. It revealed that 31% of users ages 25 to 34 and 28% between 18 and 24 showed an interest in using the digital payment for lower-priced goods. CivicScience also predicted that those percentages would increase as more brands offered this option.

Sezzle presently works with more than 7,500 merchants. In serving them, Paradis said they’re already processing more than 15% of sales. He expects digital payment to not only be a viable option, but also a marketplace disruptor in the next two or three years.

Afterpay serves more than 90,000 U.S. merchants. More than 3 million American consumers use Afterpay and Pressley attributes it largely to millennials who grew up during the last recession and witnessed the financial challenges their parents experienced. “They like this idea of spending their own money when they want to spend it and having more control over the experience,” Pressley told eMarketplace.

Other Considerations

While younger consumers may be leaning more towards interest-free DIPs, Pressley had several other interesting observations. He said they’ve observed that consumers who might normally purchase three or four items are now buying seven or eight because of DIP. He added that in Australia, where Afterpay got its start more than four years ago, repeat usage is also frequent.

The other thing Pressley said they’d observed was a change in some consumer behavior. He said that some customers who wanted to purchase a particular product were also searching for merchants who accepted Afterpay.

Pressley cited the success story of an online shoe manufacturer they worked with, who experienced a better than 100% increase in sales and more than 80% in gross margins after utilizing Afterpay. However, he added that most of the retailers they worked with see a 15% increase.

Ronn Torossian is the CEO and Founder of 5W Public Relations. 5W PR is a leading digital pr and influencer marketing agency.

Ronn Torossian

Ronn Torossian is the founder and Chairman of 5WPR, one of the largest independently-owned PR firms in the United States. With over 25 years of experience crafting and executing powerful narratives, Torossian is one of America’s most prolific and well-respected Public Relations professionals. Since founding 5WPR in 2003, he has led the company’s growth, overseeing more than 275 professionals in the company’s headquarters in midtown Manhattan. With clients spanning corporate, technology, consumer and crisis, in addition to digital marketing and public affairs capabilities, 5WPR is regularly recognized as an industry leader and has been named “PR Agency of the Year” by the American Business Awards on multiple occasions. Throughout his career, Torossian has worked with some of the world’s most visible companies, brands and organizations. His strategic, resourceful approach has been recognized with numerous awards including being named the Stevie American Business Awards 2020 Entrepreneur of the Year, the American Business Awards PR Executive of the Year, twice over, an Ernst & Young Entrepreneur of the Year semi-finalist, Metropolitan Magazine’s Most Influential New Yorker, a 2020 Top Crisis Communications Professional by Business Insider, and a recipient of Crain’s New York 2021 Most Notable in Marketing & PR. Torossian is known as one of the country’s foremost experts on crisis communications, and is called on to counsel blue chip companies, top business executives and entrepreneurs both in the United States and worldwide. Torossian has lectured on crisis PR at Harvard Business School, appears regularly on CNN & CNBC, is a contributing columnist for Forbes and the New York Observer, and has authored two editions of his book, “For Immediate Release: Shape Minds, Build Brands, and Deliver Results With Game-Changing Public Relations,” which is an industry best-seller. A NYC native, Torossian lives in Manhattan with his children. He is a member of Young Presidents Organization (YPO), and active in numerous charities.

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