Staying Competitive during Economic Downturns

When the economy is growing slowly or stagnant, businesses often see challenges trying to maintain revenue, particularly in industries driven by discretionary spending. During these times, innovative financial solutions like card-linked installment plans can be powerful tools for both consumers and retailers. These solutions give consumers more flexibility in managing their finances, spreading out large payments over time without upfront interest, while also helping retailers secure sales that might otherwise be lost.
In this blog, we explore how pay later solutions and card-linked installments thrive during economic downturns and how retail markets are impacted, using data to show the critical role these financial options play in sustaining revenue.
How Economic Downturns Impact Consumer Spending
Periods of economic uncertainty—whether driven by inflation, reduced employment, or broader market volatility— will trigger shifts in consumer spending behavior. Discretionary purchases are usually first to be affected. According to a 2020 McKinsey report on global luxury, sales of personal goods fell by 23% during the first half of the pandemic-driven economic downturn, with Europe experiencing an even sharper decline of 36% in revenue. Consumers were cautious, prioritizing essential spending over non-essential items.
Despite these downturns, businesses offering flexible payment solutions have experienced growth. The consumer financial protection bureau found that the use of installment-based payment options surged by over 200% between 2019 and 2021 globally, driven in part by the COVID-19 pandemic, as consumers sought more manageable ways to finance purchases. This trend continues to gain traction during times of economic uncertainty, highlighting the increasing demand for payment flexibility across various industries.
Why Pay Later Solutions Excel in Slow Markets
When consumer confidence dips, the perceived cost of purchasing high-ticket items increases. Installment payment plans allow consumers to manage these costs more effectively. In fact when advertising and offering installment payment plans, there’s a 3.2% increase in conversion through the merchant’s site. This financial flexibility allows people to buy higher-value goods during difficult times without compromising immediate cash flow, which is essential when budgets are tight.
The appeal of these solutions in slow economic environments is simple:
- Mitigation of Large Financial Hits: Instead of paying a full lump sum for high ticket items, consumers can break the payments down into manageable chunks, reducing the psychological burden of large purchases.
- Increased Accessibility: Installment plans extend affordability to a wider audience, including younger generations who may not have significant savings but are still drawn to particular brands.
- Higher Cart Conversion Rates: retailers report a 20-30% increase in cart conversions when pay later options are integrated. It’s a win-win: retailers gain sales that may have been lost due to upfront cost barriers, while consumers can indulge in purchases they otherwise might postpone or avoid.
During economic downturns, the demand for high-ticket items often decreases as consumers tighten their budgets. However, businesses that adopt pay-later solutions can mitigate this impact by providing consumers with more flexible payment options. For example, 39% of consumers reported they are more likely to shop with retailers offering low-interest or no-cost installment plans, which helps them manage large purchases during tough financial times. Additionally, nearly 70% of millennials said they would consider spending on major purchases when financing options are available.
These pay-later solutions don’t just maintain consumer spending; they also lead to higher transaction values. For instance, consumers using general-purpose credit card-linked installment plans tend to spend more, with a median transaction amount of $1,500, significantly higher than the $386 typically seen with BNPL plans.
Companies selling high-ticket items have integrated pay-later options to capture hesitant buyers, offering them flexibility without diminishing their product value. This strategy not only boosts immediate sales but also fosters long-term customer loyalty, as clients are more likely to return, knowing that their large purchases can be managed over time with flexible payment plans.
What the Numbers Say: The Future of Installments in a Slow Economy
As economic forecasts remain uncertain, the future points toward continued adoption of pay-later and installment solutions. The market for installment-based payment options is expected to grow by 43.8% annually through 2030 emphasizing the global demand for flexible payment options. This growth isn’t limited to any specific industry, but in markets where high-value transactions are essential, such as automotive, home improvement, and electronics, the demand is particularly strong.
In a slow economy, consumer spending often shifts toward essential goods and services, but pay-later options provide a solution that allows consumers to continue purchasing high-value products without facing the burden of upfront financial strain. For businesses selling high-ticket items, this means more stable revenue streams, fewer abandoned carts, and a sustained customer base, despite broader economic challenges.
How Pay Later Solutions Drive Revenue During Economic Downturns
As industries navigate the challenges posed by economic downturns and slow growth, card-linked installments and pay-later options have proven invaluable. High ticket products, in particular, have benefited from these flexible payment plans, helping to mitigate revenue declines by enabling consumers to spread out payments for high-ticket items.
By offering payment flexibility, brands not only protect their bottom line but also strengthen their relationships with customers. As economic uncertainty persists, it’s clear that solutions like Splitit will continue to play a crucial role in sustaining both consumer confidence and retail revenue.