To ensure customers can enjoy a comfortable shopping experience on both ecommerce sites and in physical stores, retailers must choose their payment options carefully. For example, for an ecommerce 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 ecommerce 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 ecommerce.

One way businesses can aim to create a payment environment that satisfies customers is through installment payments. In particular, if installment 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 installment payments as an option is therefore recommended, whether you’re conducting business online or offline.

This article introduces payment services that offer installment 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 installment payments
  
• Benefits of installment payments for businesses
  
• Benefits of installment payments for consumers
  
• How are installment payment fees determined?
  
• Process for introducing installment payments
  
• Frequently asked questions about credit card installment payments
  
• Stripe support for installment payments
  

Payment services offering installment payments

There are three main types of payment services that allow for installment payments on ecommerce 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 installments later.

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

Benefits of installment payments for businesses

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

Access to new target demographics

As mentioned earlier, there are various installment 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 installment 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 ecommerce businesses. Even at physical stores, there are cases where customers don’t complete a purchase because installment payments aren’t available, despite the product being exclusive to that location.

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

Additionally, if physical stores such as retailers adopt installment payments and show customers the amount of each installment 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 installment 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 installment payments for consumers

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

Reduced financial and psychological burden

Compared to lump-sum payments, installment 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, installment payments can be a helpful option.

Sound household financial management

Even when a purchase absolutely must be made, installment 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 installments 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 installment payments are easy to use, which is a benefit for consumers.

For example, most payment services that offer installments 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, installment payment services that are well integrated into the in-app purchase process are favored by many ecommerce site users. Depending on the payment service, there could be zero interest charged on the purchase, helping to reduce expenses.

How are installment payment fees determined?

When using an installment 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 installment payments to your ecommerce site or physical store, it’s important to understand the payment agent's fees and their support for installment plans.

Process for introducing installment payments

There are minor variations in the process for implementing and making installment 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 installment 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 installment payments, you might need to replace your payment terminal with one that supports installment payments.

Frequently asked questions about credit card installment payments

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

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

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

How is the credit limit handled for installment 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 installment payments, bonus payments, and revolving payments included within the shopping limit is called the “installment limit.”

Each credit card company sets installment limits to prevent customers from assuming installment 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 installment credit line is determined. This line is expected to allow installment payments or revolving credit tailored to each customer’s repayment ability. It’s important to remember that installment payments cannot be used for amounts exceeding this installment credit limit.

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

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

In the case of a full refund, the amount already paid (product cost plus installment 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 totaling ¥1,000,000 was initially set up with a payment plan of 10 installments (¥100,000 per month). Although five months (¥500,000) of installments 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 installments 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 installment payments

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

However, please note that currently, installment 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 installment payments for Visa and Mastercard, and up to 24 installments for JCB. Each of these brands also supports revolving payments and bonus payments. Additionally, while installment 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.