New Financing Trends and How it Could Affect Prepaid Customers
Paying over time, instead of one lump sum, has changed the way consumers buy expensive merchandise. There are several models—everything from four strategically-timed payments to traditional financing offered by OEMs, carriers, and other service providers. These payments are structured so that the retailer can receive the payment in full at the time of purchase and the customer enters into an agreement with a 3rd party (Klarna, PayPal, etc.) to pay later.
This behavior is significant to the prepaid wireless space because financing options for prepaid customers are limited. Customers typically must pay in full at the time of purchase to avoid the limitations that come with using a line of credit. But paying in full reduces the buying power of the individual prepaid customer. In other words, they’re limited to the funds they have on-hand.
Some pricing models suggest the interest payments are getting masked by confusing pricing standards. Protocol Fintech Team recently wrote about this concern. “’Buy now, pay later’ firms tell consumers they don’t have to pay interest — at the same time that they tell merchants the deals can help them avoid having to discount. If ‘pay later’ customers end up paying more than ‘pay now’ customers, especially as short-term credit offers are marketed to more financially strapped consumers, is that a form of price discrimination — and is the interest charge just getting disguised?” (source)
The prepaid customer is arguably the most in-need of this kind of service to accommodate limited cash flow. However, as is typically the case, there are concerns of the lower income users and the “payment deferred” customer might not get a fair shake. Interest rates for typical financing programs in the prepaid space come with outrageous price tags—sometimes costing customers as much as 80% over the original purchase price.
We hope to see a new wave of payment options coming to the market soon that will not just take advantage of those looking to defer payments but, instead, cater to their needs and thus, creating a life-long customer instead of a one-time victim.
