Installment payments for purchases made with credit cards is a common practice in Brazil. Brazilian consumers are used to financing any goods or services: from clothes to household appliances, grocery purchases and even fuel. According to Abecs, the Brazilian Association of Credit Card and Services Companies (Associação Brasileira das Empresas de Cartões de Crédito e Serviços), 62% of consumers who use credit cards purchase in installments without interest every month. By paying in installments, buyers benefit from greater purchasing power and lower impact on their monthly budget. In 2016, 57.8% of e-commerce payments in the country were made in installments, as per data of the latest Ebit report. Therefore, offering installment payments for visitors of an online store is essential for any e-commerce business wanting to succeed in Brazil.
How do Installment Payments Work?
Installment payments are generally offered by the online stores, allowing buyers to choose at the checkout the number of installments among an interval preset by the merchant. Typically, such financing is free of interest for the buyer. Or, at least, they have the option of purchasing without interest in a low number of installments. The merchant contracts the installment service and negotiates the terms and fees with their payment service provider.
Due to the frequent use of installment payments among online consumers, most online stores adjust their pricing to cover the financing costs. By contrast, it is a common practice to offer discounts for buyers who opt for one-off payment methods, especially boleto bancário as it is a secure payment method with no chargeback risk. PagBrasil offers up to 12 installments. However, merchants can set the limit of installments.
Advantages for the Merchant
Enabling installment payments at the online store favors visitors’ conversions immensely, as it eases consumers’ decisions and reduces the impact of the purchase on their budget. According to data from Abecs, 70% of the buyers who financed their purchases with credit card affirm that they would not have made the purchase if they didn’t have the option to pay in installments.
Furthermore, it is possible to sell higher value products and increase the average transaction value of the store since Brazilians usually take into account only the installment amount impact on their monthly budget and not the full purchase amount. By having the option to pay in installments, consumers hesitate less before making the purchase and feel safer knowing they don’t need to have the full amount at the time of the purchase. This allows merchants to attract more clients and foster their loyalty.
When it comes to the settlement of payments made in installments, Brazilian acquirers release the funds monthly as the installments are paid. However, each payment service provider can define its settlement terms. PagBrasil, for instance, offers the great advantage of anticipating all the installments in the first month.
Purchases made in installments commonly entail more costs for the merchant, be it for the wait to receive the funds on a monthly basis or due to the anticipation costs. Nonetheless, as offering installment payments at the checkout typically increases conversions by 50%, it compensates the higher investment.
Comments
Hi Julia,
Thanks for the article. Can you please provide your thoughts on two of my queries:
1) What is the historical precedent for installment payments in Brazil?
2) What are the chances that these installments payments will go away?
Thanks
Hi. Please let me answer on behalf of Julia: installment payments became so popular in Brazil due to low purchasing power (low minimum wages, high costs of living, etc). In order to stimulate the consumption, consumers have the option of financing their purchases. So you can understand how popular it is, According to Abecs, BRL 353.1 billion in credit was granted for consumers using installment payments in 2016. This represents 54.4% of the total volume of credit granted to private individuals to finance their consumption of goods and services.
Also, The National Consumer Indebtedness Survey indicated that as of January 2017, 55.6% of the Brazilian households had some type of debt, such as installment purchases with credit cards, car leases, loans or insurance. Credit cards were the main type of debt (due to pending installments) for 77.30% of the households.
In light of that, it is safe to say installments won’t go away soon. However, due to the difficult economic situation in the country, consumers are becoming more cautious and prioritizing one-off payments, particularly when offered discounts to do so (shops tend to do that if buyers pay with Boleto Bancário as they will have faster access to the money – Brazilian acquirers pay with a delay of 31 days and one installment at a time).
I hope this answer your questions.
Best,
Bianca
Thank you for the article
Would it be possible to clarify who bears the credit risk? Are the installment automatically deducted from the payment card at every installment?
Thanks
Tong
Hi Tong. The issuing bank is the one bearing the credit risk. Each installment is charged on a monthly basis from consumers cards. Here you can check more about installment payments in Brazil: https://www.pagbrasil.com/news/all-about-installment-payments/. I hope this helps!
Can pay a boleto issued for 850 for example. ..can I pay twice
Hi. Yes, you can pay a boleto issued for that amount. If you need to pay more than once, the seller/service provider should send you two different boletos to be paid, otherwise, there will be accounting mismatches if you pay the same boleto twice.
Hi, is there a big difference in the popularity and usage of installment payments between individuals versus businesses? Do businesses buying online (for example online marketing tools for use in their marketing department) use credit cards to purchase and if so, are installment payments an option? Or is payment via invoice/transfer more common?
Hi Robert. Yes, there are differences in installment usage. B2C consumers are more likely to use installments. However, when it comes to subscription B2B services like the one you mentioned, many Brazilian businesses prefer to pay via Boleto Bancário (invoice) on a monthly basis (or upfront depending on discounts, for instance).
[…] from PagBrasil indicates that in 75% of all online card transactions consumers take advantage of installment payments when given the […]
Hi Julia, thanks for your report. I am new to Brazil, from New York and a legal resident. My question is, how much can I borrow on a 100,000.00 BRL car loan and what us the the pay back time. Any suggestion would be appreciated.
Thanks.