Consumer spending: fractional payments on the rise

Easy to set up, fractional payments have seen strong growth over the past 5 years, boosted by e-commerce and reinforced by Covid-19. The authorities now fear that the growth of this payment method will lead to an increase in the rate of overindebtedness.

Pay for a major purchase in instalments

Fractional payment is a type of credit offered by an online or in-store merchant, enabling the consumer to pay for a large purchase in instalments.

In France, two types of player dominate the market:

  • historical ones such as Floa, Oney and Cofidis, which are owned by banks;
  • and startups (Alma, Cresh or Pledg).

Outside the French market, the Swedish Klarna, the American Affirm and the Australian AfterPay are the best known.

A payment method accepted by more than one in ten merchants

Clothing, video games, electrical appliances... Fractional payments are increasingly used to pay for everyday purchases. Some stores even accept it to pay for school supplies. It has to be said that paying in instalments doesn't impact the consumer's budget in the same way as a single payment, allowing them toamortize their pleasure purchases over several weeks.

For their part, retailers, more than one in ten of whom accept this method of payment, can use it to boost their sales. Despite its advantages, instalments account for only 5% of consumer credit, or 4.5 billion euros a year.

A recent study published by Deloitte states that " fractional payment facilities will grow strongly over the next few years ".

This observation is shared by industry professionals, who expect the use of this solution to triple over the next twelve months. The reason is that these mini-credits are far less restrictive than conventional consumer credit. Consumers don't have to fill out a credit application. They are therefore very easy to apply for.

A risk for household overindebtedness

Even if the charges applied to fractional payments are marginal, penalties may be added in the event of late repayment. What's more, the creditworthiness of the consumer and the existence of any other outstanding instalments are not checked. For all these reasons, the authorities fear a rise in the rate of household overindebtedness.

Like the European Union, France is studying the possibility of tightening commitment requirements. A few months ago, Philippe Chassaing, a French Member of Parliament, was commissioned to examine this issue, and last October he submitted a parliamentary report recommending a better framework for fractional payments " without waiting for the European directive to be voted on ".

For its part, the European Commission suggests that fractional payments and micro-credit be brought into line with the consumer credit framework. The tightening of pre-contractual information requirements and improved consumer creditworthiness rules contained in the proposed directive could make some buyers ineligible.