How Instalment Plans Can Alleviate Persistent Credit Card Debt, According to Auriemma Consulting Group
March 30, 2018
(London, UK): Consumers experiencing or on the brink of persistent debt are now covered by new rules and guidance aimed at protecting them, thanks to the Financial Conduct Authority (FCA). The FCA is calling upon issuers to identify and assist at-risk consumers and those within the cycle of persistent debt. In a policy statement released on 27 February 2018, the regulator anticipates savings up to £1.3bn a year in lowered interest charges for those in persistent debt. It would benefit issuers, however, to help at-risk consumers before they get to this point. Instalment plans can be used to discourage persistent debt and ultimately encourage healthier payment behaviours.
Instalment plans are popular among consumers who receive offers for them. New data from Auriemma Consulting Group shows 61% of those solicited have taken one – but a minority (38%) of credit cardholders have ever been offered an instalment plan. Regardless of whether they receive an offer, consumers like the benefits instalment plans can provide, particularly being forced to pay off their balance within a set period (58%) and reducing the stress of large purchases (54%). These motivating factors encourage big ticket purchases while also setting clear expectations for payment, a win-win for lenders who want to best serve at-risk customers and help them develop positive payment habits.
“Instalment plans give consumers a great way to manage their budgets by spreading the cost of a purchase over a series of fixed monthly payments,” says Wendy Bradley, Director at Auriemma. “They take the guesswork out of how much is owed each month. By preempting the negative experience of persistent debt with the more positive, guided experience of an instalment plan, issuers can rescue what may otherwise become a contentious customer relationship.”
Some creative solutions in the marketplace bundle an instalment plan feature within a more traditional credit card product. And while consumers are mixed on whether they prefer the flexibility of revolving or the predictability or instalment plans, a blended product has the potential to cater to individual preferences while garnering interest from a larger pool of customers. If created, the offering would need to have an optimal user experience and be communicated simply and clearly—41% of consumers believe the terms of instalment plans are too confusing.
“Instalment plans are typically presented at the point of sale for larger purchases, but they could also be a tool for issuers to help their customers manage their existing unsecured debt,” says Bradley. “While they don’t guarantee repayment, instalment plans could help motivate consistent repayment behaviours to get customers back in good standing before they require the greater assistance the FCA’s new guidance calls for.”
This study was conducted online within the UK by an independent field service provider on behalf of Auriemma in November-December 2017, among 500 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.
About Auriemma Consulting Group
For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.acg.net or call +44 (0) 2076-290075.