Installment payments are gaining popularity as an alternative to traditional credit products, prompting Affirm to increase its visibility in an increasingly crowded market.

By partnering with Shopify, Affirm hopes to gain brand recognition – and scale – among small businesses and ecommerce sellers.

“We will be able to gain acceptance for Affirm in many more places and move towards ubiquity,” said Michael Linford, Chief Financial Officer of Affirm.

Affirm will support installment plans on Shopify’s ecommerce platform, piloting the option in the coming months. Shop Pay installments are expected to reach merchants later this year, initially in the United States.

Merchants will add Affirm Shop Pay installments to their Shopify store. Affirm will be enabled by default for any customer who chooses to pay via Shop Pay at checkout, giving them a head start among point-of-sale credit options. Buyers can divide the total amount of purchases into four bi-monthly interest-free payments at no additional cost to consumers.

Affirm reports that it served 5.6 million consumers and over 6,000 merchants, with a 40% increase in merchant signings from March 1 to April 30, 2020, compared to. January 1 to February 29). Merchants claim include Dyson, Oscar de la Renta, Walmart, Peloton and West Elm.

Shopify has around 1.2 million merchants, up from just over 800,000 in 2018, according to Marketplacepulse.

Part of the race between point-of-sale credit companies like Affirm, Klarna, Splitit, and PayPal is merchant reach. Businesses are less likely to use the service frequently if they are unsure whether most merchants will offer the product.

“The scale of Shopify is huge, with millions of potential consumers,” Linford said. “It will benefit tremendously when we become more universally present in the eyes of the consumer.”

Point of sale credit businesses have reported increases during the pandemic as consumers turn away from revolving credit for larger purchases.

Splitit saw 165% year-over-year growth in April and a 153% increase from March to April. Klarna reported a weekly jump of 16% in the last week of April alone, with similar double-digit jumps for most of the other weeks this spring and into early summer.

Just as the challenger banks were born out of the 2008 financial crisis, credit alternatives are in the spotlight during the financial crisis that accompanied the coronavirus epidemic.

“It’s easy to build up credit card debt,” Linford said. “The revolving card product is designed for people to make the minimum payment. By using installment payments, you don’t let the consumer do things that are bad for them, or be wrong. “

There is a counter-trend that could restrict installment loans and increase competition among lenders. More than half of consumers (53%) are cutting back on spending, which typically translates to lower overall adoption of payment methods, including installment loans, reports Javelin Strategy & Research. In 2019, 39% of consumers had used an installment loan in the past 12 months, but that number fell to 34% in 2020 amid spending cuts, according to Javelin.

“One of the downsides of an installment loan is that it aims to encourage discretionary spending. It’s not like you can use them to pay for groceries or other essentials, ”said Rachel Huber, senior payments analyst at Javelin. “As a result, this can inadvertently lead a consumer who lives paycheck to paycheck to make a purchase that they would not otherwise have, which hurts the chances of a refund and affects their financial stability.

Affirm also hopes to reach small businesses with average sales of $ 50,000 to $ 100,000, which are typically outside of the co-branded or private label credit card market.

The pressure for point-of-sale credit is less about people who don’t trust banks – as was the case in 2008 – as much as it is about getting what consumers see as greater visibility of their debt. . Point-of-sale credit is not a debit card. These are still loans, but usually come with a promise of dedicated installment payments with no interest and simple fees.

Banks have just as many reasons to worry credit card debt. Card usage increased from 23% at the start of 2014 to 24% at the end of 2019, with banks’ exposure increasing from $ 660 billion on $ 2.91 billion in limits to $ 930 billion in balances – which caused banks to add $ 1 trillion in limits to meet demand, according to the Federal Reserve Bank of New York.

During the recession, this credit will tighten as card lenders cutting limits. This will push the market further towards alternative credit arrangements. Credit card companies are aware of the trend and have taken steps to adjust.

Mastercard recently entered into a five-year agreement with Separate it to use the card network gateway and API to improve the delivery of Splitit’s installment payment in different channels. And Visa has invested in Klarna before the expansion of the Swedish company in the United States

The point-of-sale credit market has come under scrutiny. In Sweden, regulators have required traders to present payment options that do not create debt as well as options to increase debt.

The sheer scale of the merchant network provides a flow of data that informs Affirm’s underwriting, Linford said, adding that delinquencies are at a “historic low” level.