CEO Insights: Committing to Responsible Credit
As CEO of Splitit, I’m very proud of our company’s commitment to financial responsibility. Splitit’s installments product helps consumers make better use of the card balances they already have available. It helps them make good decisions about affordability by spreading a purchase across several monthly installments.
Credit has become an increasing topic of concern for the overall economy in many markets, and with the levels of debt we are talking about in 2019, it really matters to make sure credit is being utilized well.
Here are the facts. Credit has steadily climbed since the worst of the global financial crisis. In 2019, discretionary debt in the U.S. crossed the $1 trillion mark, according to the Federal Reserve Bank of New York. Default rates are nowhere near crisis level, but they are inching up, with approximately 5% of accounts at some level of delinquency. The same upward trends are occurring in the U.K. and in the Euro Area, where consumer debt levels are at all-time highs as well at approximately €714 billion. Australia has been an exception with declines from a peak in 2017, according to the Reserve Bank of Australia, but at AU$49 billion, the amount is still not trivial.
Many pundits have criticized alternative financing providers for contributing to this concerning trend of consumers running up debt. But I’m happy to be able to say that Splitit is an exception here.
New credit does have its advantages for consumers, especially in markets with positive credit scoring such as the U.S., U.K., Canada, and, more recently, Australia. It helps consumers build up a credit history by managing timely repayments and credit utilization. As a result, it helps improve a consumer’s credit score, which can help with major life purchases such as cars and houses.
On the other hand, new credit can also have unwanted cumulative effects on consumers. Another line of credit means another bill to pay, with its own interest rate, and with the corresponding risks of late fees and longer-term impacts to credit history that could lower creditworthiness and increase interest rates.
Unlike alternative finance, Splitit’s approach to installments on existing credit cards does not cause consumers to risk further extending themselves with new credit. We are committed to helping consumers manage their purchases more effectively and reduce the financial impact of larger purchases at the point of sale, by utilizing their existing credit availability. This approach even helps consumers make better use of rewards or points programs on their existing cards.
In a recent Splitit survey, we found that 42% of consumers worry about going over their budgets this holiday season. I believe most consumers who overextend themselves for a specific purchase would rather not do so, but they give in because there aren’t enough options between new credit and not purchasing at all. For those consumers, the use of existing credit offers a responsible alternative.