10 yuan condom, still have to pay in installments?

China News Weekly

2024-06-23 14:26Published on the official account of China News Weekly in Beijing

On today's shopping platforms, there is almost nothing that cannot be paid in installments.

JD.com, Taobao, Pinduoduo, Vipshop and other platforms have launched interest-free installment payment services for some goods, which can be paid in 3 interest-free installments and 24 installments. The range of goods is also very wide, from luxury goods of tens of thousands of dollars to paper notebooks of a few dollars, all of which can be interest-free in installments.

11.98's condoms can also be interest-free in 12 installments|Source: Screenshot of JD.com's payment interface

Why do you shop so much interest-free installments now? Is this payment method really that "fragrant"?

Interest-free installments, standard with promotions?

The modern installment business can be traced back to the United States in the 19th century.

In 1855, the famous sewing machine company I.M. Singer introduced an installment payment plan, where buyers only had to pay $5 to get their purchases, and then pay another $3~5 per month until the full amount was paid.

When the program was launched, it was immediately welcomed by consumers. Due to the limitations of production technology at that time, sewing machines were expensive and belonged to high-end luxuries, and only a few wealthy families could afford to pay the full amount at once, and with the help of installment payment plans, ordinary families also had the ability to buy sewing machines, and the performance of Singer Company also increased greatly.

Source: Singer's official website

Soon, this shopping model was copied by other companies and gradually became popular worldwide. In the mid-to-late 20th century, the combination of installment payments and credit cards made it easier to spend. However, credit card installment payments usually charge a certain amount of interest and processing fees, and there is no such thing as "interest-free".

At the turn of the century, with the vigorous development of the market economy, the competition between major financial institutions continued to intensify. In order to attract customers, the interest-free service is introduced.

According to China News Service, China Merchants Bank was the first in China in 2003 to announce the launch of "interest-free installment" business for credit cards.

At that time, cardholders with China Merchants Bank credit cards only needed to pay part of the monthly payment for the purchase of goods, and the remaining amount was generally repaid in equal installments of 6~12 months, while the total amount of the cardholder's installment payment was completely equal to the price of the product, and there was no need to pay any additional interest. In order to fully promote the new business, China Merchants Bank Credit Card also "joined hands" with Hewlett-Packard to jointly launch an interest-free installment payment campaign, which can be purchased with a total of four products, including HP laptops and PDAs.

Since then, e-commerce has gradually stood on the cusp of the times, and interest-free installments have also been played by major e-commerce platforms.

Among them, the most representative is the industry's first Internet credit consumer product "Jingdong Baitiao" launched by JD.com. It can provide consumers with 3~24 months of installment services, every "618", Double 11 and other promotional nodes, Jingdong will issue "interest-free coupons" to allow consumers to enjoy interest-free installment discounts.

On Taobao, many merchants will join forces with Ant Huabei and multiple bank credit cards to launch interest-free installment services for consumers during the promotion period. Taking Apple's official flagship store as an example, an iPhone15 worth 5999 yuan can choose to pay in installments or credit cards at the time of payment, and you can enjoy up to 12 interest-free periods, and you only need to repay 16.66 yuan a day.

Source: Screenshot of Taobao payment interface

In addition, Douyin monthly payment on the Douyin platform, Tencent's micro loan, Meituan's Meituan monthly payment, and Suning Tesco's willful payment have also launched interest-free installment services.

Source: Douyin @ Xiaowang Youpin Digital Mobile Screenshot of the live broadcast

It can be said that today's interest-free installment has become the promotional standard of major e-commerce platforms.

Of course, the effect of interest-free installment promotions is indeed immediate.

According to the "Mutual Benefit and Win-Win, Revitalizing Growth - White Paper on the Value of Interest-free Installment Tools" (hereinafter referred to as the "White Paper") released by iResearch in January 2024, nearly seventy percent of merchants who have used interest-free installment tools have felt the increase in sales of interest-free installment tools to a certain extent.

Among them, merchants in the 3C digital, home appliances and household goods categories feel more obviously the role of interest-free installments to increase sales.

According to the white paper, after using Huabei interest-free installments, the overall turnover of Rongsheng refrigerator flagship store increased by 15%~20%, and the turnover of mid-to-high-end refrigerators with a unit price of more than 5,000 yuan increased even more significantly, reaching 30%. Similarly, after the launch of the interest-free installment service, the overall turnover of the Gujia Home Furnishing flagship store has also increased by 30%~40% compared with before. During the launch of the new annual popular sofa products, Lin's Home Furnishing provided interest-free subsidies to Huabei in installments, and the monthly sales after that increased by 30% compared with the time without subsidies.

According to the statistics of iResearch, at present, the interest-free installment service has been widely recognized by merchants. Nearly 50% of the merchants surveyed have provided interest-free installment services in the past, and almost all merchants who have not provided interest-free installment services are also willing to introduce them in the future.

The interest-free installment has captured the hearts of merchants.

Are consumers "taking advantage"?

On the face of it, interest-free services will lead to a reduction in interest income, but what are the benefits of this for merchants and financial institutions?

Fundamentally, it's about gaining a place in the fierce market competition. Dou Donghui, an associate professor at the Department of Psychology at the School of Sociology and Psychology of the Central University of Finance and Economics, told Yiyu that first, by providing interest-free installment services, merchants can increase sales, accelerate the return of funds, and increase market share. Secondly, the interest-free installment service allows consumers to make multiple micropayments, which increases the exposure of product information in the minds of consumers, and helps to enhance consumers' trust and loyalty to the brand. Third, consumers continue to pay over a period of time, which helps merchants stabilize their cash flow. Finally, merchants cooperate with financial institutions to provide installment services, financial institutions expand their business by providing services, and merchants attract consumers through this cooperation, achieving a win-win situation.

When buying a brand of beauty instrument on Taobao, there are interest-free installment services from many financial institutions to choose from|Source: Taobao screenshot

So, in this installment interest-free shopping "carnival", what is the situation of consumers?

Dou Donghui said that the preferential policy of interest-free installments makes consumers do not need to take out the entire amount at one time when paying, and the financial pressure is small, thereby lowering the purchase threshold and stimulating consumers' desire to consume.

This can be explained from the point of view of mental accounts. The psychological account theory was proposed by Richard Thaler, winner of the 2017 Nobel Prize in Economics, which believes that people will set up different mental accounts for consumption due to the payment method, purpose, time, etc., and each account is relatively independent of each other.

In interest-free installment payments, because the current payment and future payment are separated, although the final payment is the full amount, the current payment is very small, and the current payment account has a greater psychological weight, so the consumer feels that he is buying goods at a very low price. Moreover, although "interest-free" is free of interest costs, it also activates the concept of "free" to a certain extent, which is very attractive to consumers.

However, it is understandable that thousands of digital home appliances are paid interest-free in installments, and those goods with lower prices (some even less than 10 yuan) have also begun to be interest-free in installments, what's going on?

A brand loose-leaf book with a price as low as 12.8 yuan can also enjoy 24 interest-free periods of white strips, and only need to pay 6 dimes per month|Source: Screenshot of Jingdong's payment interface

Dou Donghui explained that this strategy is based on expectation management to stimulate consumers' desire to buy, when consumers see that goods below 10 yuan can also be interest-free installments, which often exceeds consumers' expectations for "cheap", so that consumers have an impulse to buy, for merchants, this also helps low-priced products to go quickly. Moreover, such low-priced products that can be paid in free installments are often used as drainage products.

It is worth noting that if you want to buy such low-priced goods in installments interest-free, consumers must open the corresponding installment service, and once you get on the "boat" of installment payment, it may not be so easy to go down.

After all, there is no free lunch in the world, and the interest-free installment payment mechanism, which seems to allow consumers, merchants and financial institutions to achieve a "win-win" situation, actually hides some "pits" for consumers.

First of all, interest-free installment payments can easily lead consumers to impulsively spend and overspend, buy some goods that they don't need, and increase unnecessary spending.

Secondly, the interest-free installment policy may imply some hidden costs, such as binding a designated bank card or registering on a designated financial institution platform to enjoy interest-free installments, and some banks or other financial institutions will also charge a certain handling fee or service fee although they provide interest-free services.

If the user is not bound to the designated installment credit card, the platform will automatically jump to other payment methods|Source: Screenshot of Taobao payment interface

Moreover, the premise of enjoying the interest-free is to repay the loan on time, and if the repayment is not made on time due to special reasons, you will have to pay the default cost - not only the interest-free or service fee waiver may be cancelled, but also the service fee, liquidated damages, etc. may be charged on a daily basis, and the personal credit score will also be affected.

JD Baitiao's relevant provisions on overdue repayment and liquidated damages collection standards|Source: JD Finance

All in all, even if it is interest-free in installments, in the final analysis, it is still necessary to take out the consumer's wallet, no matter how cheap things are, if they are not needed, they are bought just because they are cheap, it is also a waste, and rational consumption is king.

Resources:

[1] HE Pingping, CHHE Yunyue, CHEN Xiaoyan. Consumer Finance and Supply Chain Finance. Tsinghua University Press. 2017.

[2] Liu Pei, Feng Yidan, Li Aimei, Liu Wei, Xie Jianfei. Demystifying Behavioral Anomalies in Economic Management: Implications for the Application of Psychological Account Theory. Advances in Psychological Science, 2019, 27(3): 406-417.

[3] iResearch: Mutual Benefit and Win-Win, Revitalizing Growth - White Paper on the Value of Interest-free Installment Tools

[4] Tech Fox: Sweet Trap Interest-free installments

Author: Min Min Du Yuxin

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