The dangers of split payments

As prices rise, many Europeans are turning to fractional payments to maintain their standard of living. This payment facility, which is not without its dangers, is now being used to pay for purchases of just a few dozen euros on credit.

Fractional payments: a worldwide craze

The "buy now pay later" (BNPL) principle is simple: when making a purchase, the consumer can decide tospread the cost over three or four monthly instalments for a negligible fee. This practice does not fall within the scope of consumer credit regulations, as long as repayment does not exceed 3 months and charges are marginal.

A number of players have entered the fractional payment market, mainly fintechs such as Sweden's Klarna, France's Alma and Australia's Afterpay, in response to the rapid growth of e-commerce, which has been reinforced by the pandemic. Faced with the success of these young companies, the giants PayPal and Affirm took an interest in the sector, promising not to charge merchants any commission for this service.

Another reason why merchants are installing BNPL on a massive scale is that it enables them to boost their customers' average shopping baskets and increase their conversion rates. Several studies show that a merchant's conversion rate can rise by up to 20% with a fractional payment solution.

As a result, the global fractional payment market has quadrupled in just 2 years to reach $80 billion. It could reach $250 billion by 2025, according to Kaleido Intelligence.

Beware of the pitfalls of split payments

Fractional payments entail risks that should not be underestimated, especially as they are not currently covered by consumer credit regulations. This means that debtors benefit from no protective measures such as the right of withdrawal.

Failure to check a consumer's creditworthiness can encourage him or her to increase the number of instalments, leading to over-indebtedness. This is a very real risk, as in France almost one in ten people fail to repay a fractional payment on time. In such cases, some operators do not hesitate to apply late payment penalties of up to 30 to 40% of the outstanding capital.

Alerts are multiplying to warn consumers of the risks associated with this payment facility. Recently, MP Philippe Chassaing published a report on the prevention of overindebtedness, which highlights the dangers of fractional payments and calls for a framework for this practice. In his view, fractional payments should be subject to rules concerning advertising, information on the cost of credit and assessment of the borrower's solvency.

According to Geoffroy Guigou, co-founder of Younited, in an interview with Les Echos, the use of fractional payments, even for purchases of just a few dozen euros, raises the question of the kind of society we want to promote.