To ensure customers can enjoy a comfortable shopping experience on both e-commerce sites and in physical stores, retailers must choose their payment options carefully. For example, for an e-commerce site, offering multiple commonly used online payment methods expands customer choice, enhancing the site's convenience and leading to increased customer satisfaction. Furthermore, when operating cross-border e-commerce targeting not only Japanese customers but also overseas markets, it's important to pay attention to payment options that are popular overseas and consider introducing payment methods suitable for cross-border e-commerce.

One way businesses can aim to create a payment environment that satisfies customers is through instalment payments. In particular, if instalment payments are not offered as a payment service when shopping for high-priced items, potential buyers might lose interest or abandon the purchase completely because paying the full amount immediately is too difficult, resulting in lost sales opportunities. Offering instalment payments as an option is therefore recommended, whether you're conducting business online or offline.

This article introduces payment services that offer instalment payments, along with the benefits of implementing them for both businesses and customers. We'll also explain payment processing fees and address frequently asked questions.

What's in this article?

• Payment services offering instalment payments
  
• Benefits of instalment payments for businesses
  
• Benefits of instalment payments for consumers
  
• How are instalment payment fees determined?
  
• Process for introducing instalment payments
  
• Frequently asked questions about credit card instalment payments
  
• Stripe support for instalment payments
  

Payment services offering instalment payments

There are three main types of payment services that allow for instalment payments on e-commerce sites and in physical stores:

• Credit card payments: Credit card payments are based on the customer's creditworthiness. The purchase amount is initially covered by the card company, then billed to the purchaser at a later date.

• Buy now, pay later (BNPL): As the name suggests, BNPL is a deferred payment method that allows customers to purchase goods now and pay for them at a later time.

• Shopping loans: These are dedicated loans available for purchasing specific products or services. For typical shopping loans, the purchase price is advanced by a credit finance company such as JCB, and the buyer repays it in instalments later.

Let's take a closer look at each of these options.

Benefits of instalment payments for businesses

When businesses introduce instalment payments, they can gain the following benefits:

Access to new target demographics

As mentioned earlier, there are various instalment payment services that can be used without a credit card. This allows companies to appeal to younger generations who don't have credit cards. By offering instalment payments in addition to lump-sum payments, businesses can stimulate purchasing interest among a broader range of consumers, potentially leading to the acquisition of new customers.

Reduced risk of cart abandonment

Cart abandonment, the phenomenon in which customers leave a site without purchasing the items they added to their cart, is a particularly serious problem for e-commerce businesses. Even at physical stores, there are cases where customers don't complete a purchase because instalment payments aren't available, despite the product being exclusive to that location.

One reason consumers abandon their purchases, similar to cart abandonment on e-commerce sites, is the lack of desired payment methods. Therefore, introducing instalment payments alongside multiple e-commerce payment options can help reduce customer churn and improve conversion rates.

Additionally, if physical stores such as retailers adopt instalment payments and show customers the amount of each instalment payment, they can lower the barrier to purchase and make customers more likely to buy.

Increase in average spending per customer

The positive experience of being able to use instalment payments to purchase desired items without financial strain can lead to increased customer satisfaction. Providing customers with a positive buying experience can inspire an increase in high-value purchases, ultimately leading to an increase in average customer spending.

Benefits of instalment payments for consumers

Next, let's take a look at the advantages for customers who pay in instalments.

Reduced financial and psychological burden

Compared to lump-sum payments, instalment payments, which do not require the full amount to be paid at once, have the major advantage of reducing psychological pressure and preventing the financial burden from being felt all at once. For example, for products and services that tend to be expensive, such as furniture, home appliances, luxury brand clothing and overseas travel, paying in one lump sum can be an excessive burden. For customers feeling this burden, instalment payments can be a helpful option.

Sound household financial management

Even when a purchase absolutely must be made, instalment payments prevent placing unnecessary burden on the household budget, allowing customers to manage their finances in a planned and grounded manner. Avoiding large one-time payments can help you avoid the risk of financial strain. Paying in instalments allows the customer to not only acquire things they wouldn't be able to get with a lump-sum payment, but it also helps them maintain a sound financial plan.

Simple and seamless purchasing experience

Payment services that allow instalment payments are easy to use, which is a benefit for consumers.

For example, most payment services that offer instalments through an app require the user to enter the necessary information such as credit card details only when making the first payment. Once registered, subsequent purchases can be completed easily and quickly without re-entering this information.

Therefore, instalment payment services that are well integrated into the in-app purchase process are favoured by many e-commerce site users. Depending on the payment service, there could be zero interest charged on the purchase, helping to reduce expenses.

How are instalment payment fees determined?

When using an instalment payment service, the payment fees incurred by businesses are based primarily on the following factors:

• Business activities (industry)
  
• Sales (transaction amount)
  
• Number of payments
  
• Business scale
  
• Creditworthiness
  

However, the actual amount of the fee varies depending on the contract type with the payment service, the contracted card company or credit finance company and the payment agent, so it cannot be clearly defined in general terms. Additionally, since card companies and consumer finance companies typically do not disclose their merchant service fees, it's important to obtain a detailed estimate in advance stating the implementation costs (such as the dedicated payment terminals required for credit card processing in physical stores) and ongoing operational costs.

Before signing a contract for payment services, be sure to check the payment fees and carefully consider the cost-effectiveness. For example, when using a payment agent to introduce instalment payments to your e-commerce site or physical store, it's important to understand the payment agent's fees and their support for instalment plans.

Process for introducing instalment payments

There are minor variations in the process for implementing and making instalment payments available depending on the payment service, but it generally follows these steps:

• Apply for payment services.
  
• Complete and submit the merchant application form received from the card company or credit finance company.
  
• Card company or credit finance company conducts screening.
  
• Receive notification of screening results.
  
• For physical stores (including mobile sales such as pop-up shops near stations), the card company will deliver a dedicated payment terminal.
  
• Begin accepting instalment payments.
  

Please note that, regarding the fifth point above (for physical stores), if you already have a contract in place for credit card payments and are now introducing instalment payments, you might need to replace your payment terminal with one that supports instalment payments.

Frequently asked questions about credit card instalment payments

When shopping with a credit card in Japan, you can usually choose to pay in full or in instalments at the time of purchase. Here are some frequently asked questions about introducing credit card instalment payments.

What happens if a credit card user makes a purchase using instalment payments but fails to pay the billed amount?

Because the card issuer has already authorised the amount, the business will receive the billed amount.

How is the credit limit handled for instalment payments on a credit card?

The maximum amount that can be spent on a credit card is called the "credit limit." Additionally, within the credit limit, the card usage limit excluding cash advances is referred to as the "shopping limit." The usage limit for instalment payments, bonus payments and revolving payments included within the shopping limit is called the "instalment limit."

Each credit card company sets instalment limits to prevent customers from assuming instalment payments that exceed their ability to repay. Therefore, if payments are made over more than two months, a credit card spending limit (estimated payment capacity) is set and an instalment credit line is determined. This line is expected to allow instalment payments or revolving credit tailored to each customer's repayment ability. It's important to remember that instalment payments cannot be used for amounts exceeding this instalment credit limit.

For example, if your credit card has a shopping limit of ¥700,000 and an instalment limit of ¥500,000, this means that up to ¥500,000 of the ¥700,000 shopping limit can be used for instalment payments, revolving payments or bonus payments.

What happens if a full or partial refund is issued during a credit card instalment payment plan?

In the case of a full refund, the amount already paid (product cost plus instalment fees) will be refunded in one lump sum to the cardholder and no further charges will be incurred.

If a portion of the amount has already been paid, a new payment plan will be executed after the refund. For example, suppose a shopping purchase totalling ¥1,000,000 was initially set up with a payment plan of 10 instalments (¥100,000 per month). Although five months (¥500,000) of instalments have already been paid, if for some reason ¥400,000 is to be treated as a refund from the original total amount billed, the adjusted total amount billed will be ¥600,000 (¥1,000,000–¥400,000). Since ¥500,000 has already been paid, the remaining amount subject to billing is ¥100,000 (¥600,000–¥500,000). Subsequently, a new payment plan will be established with 10 monthly instalments of ¥10,000 each.

However, the above is merely one example, and the handling might vary depending on the card issuer. It's therefore important to contact the card issuer directly to confirm.

Stripe support for instalment payments

In Japan, approximately 70% of purchases for goods and services on e-commerce sites are paid for using credit cards. Using Stripe is one way to introduce instalment payments for frequently used credit card transactions. With Stripe, there are no additional fees for instalment payments; only the standard 3.6% payment processing fee applies, the same as for one-time payments. (Depending on the instalment plan, credit card users might have to pay interest or other charges to their card issuer.)

However, please note that currently, instalment payment services through Stripe are only available for credit cards issued in Japan, and the payment currency must be Japanese yen (JPY).

With Stripe, you can offer customers highly flexible purchase plans, with up to 60 instalment payments for Visa and Mastercard, and up to 24 instalments for JCB. Each of these brands also supports revolving payments and bonus payments. Additionally, while instalment payments are paid to the business in a lump sum, the advantage of using Stripe is that it features a short payment cycle, with the total invoiced amount being received within four business days. This makes it a compelling option for businesses looking to improve cash flow and increase revenue.