Shoppers love to browse online, but somewhere between filling up their cart and checkout, they change their minds. In 2016 alone, consumers left $4.6 trillion of merchandise abandoned in their carts, according to Business Insider.
Retailers want to reduce that painful number, and they are turning to installment loans as a potential solution. In the U.S., consumers buying a mattress from Casper or a bike from Peloton can choose to “Buy with Affirm,” a financing option that breaks the total cost into a series of monthly payments, plus interest.
In Europe, online installment loan financing is now ubiquitous thanks to Klarna, a Swedish company that handles 450,000 transactions per day. Both Affirm and Klarna pay the retailer in full at the time of purchase.
Now Square, run by Twitter CEO Jack Dorsey, is angling for a piece of the action. This week the payments company unveiled an installment loan pilot program for the small businesses that use its invoicing software. A couple planning a wedding, for example, could opt for a Square loan after receiving an invoice from their florist. The florist gets paid immediately, and the newlyweds-to-be pay off the bill over the course of three, six, or 12 months.
Unlike CEO Max Levchin’s Affirm, Square will not vary the interest rate it charges based on a consumer’s credit history. Instead, all consumers approved for a Square loan will pay an APR of 9.99%. Loan amounts will range from $250 to $10,000. For now, Square will keep the loans on its balance sheet, and take on the risk of default. (Many online lenders package their loans and sell them to outside investors.)
The installment loan product allows Square to simultaneously establish a direct relationship with consumers, while at the same time continuing to serve the small business owners that represent its core base. Earlier this year the company unveiled a prepaid debit card, another indication of its consumer-facing ambitions.
Affirm’s track record suggests that Square merchants may see a lift if consumers embrace the loans. In announcing its 1 millionth installment loan this past April, Affirm said that its retailers see conversion rates increase by up to 20%. Order values and revenue per visitor increase as well, on average.
Square’s loan product, because it is based on an invoice and not a checkout cart, will not produce all those same benefits for merchants. But it does have the potential to help them get paid faster—which for a small business, can make all the difference.