Visa’s chief economist recently warned that fintechs are disintermediating the credit card business of banks with instant access to installment loans. Now Visa is looking to disrupt fintechs by giving issuers a way to do the same.

Visa is testing API-based technology that allows issuers to extend the option of an installment loan to existing credit card customers at the time of payment, adding to their repayment choices, the Credit Card Network announced Thursday. San Francisco.

The move appears to have the effect of dissuading credit card customers from turning their businesses over to online instant finance powerhouses like Affirm and Klarna, which are rapidly spreading as popular options for consumers looking for alternative ways to pay. for big ticket items without adding to their credit rating. .

Visa offers issuers a way to counter these forces through an API that offers a range of alternative payment options to customers in addition to their current credit card balance, Visa said in the statement.

In 2010, fintechs held only about 1% of unsecured installment debt in the United States, according to Visa’s analysis of anonymized personal loan data from TransUnion. But that number jumped to 36% in 2017, and it’s estimated to have reached almost 40% today, according to Wayne Best, chief economist at Visa.

When consumers shift their spending to an installment loan provider, it blurs their risk profile, he told SourceMedia’s Forum Card in May.

“When you, as a consumer, move a credit card balance… to unsecured installment credit, it doesn’t weigh as heavily on your credit score,” Best said. “Let’s say I was a near privileged client before; now that has propelled me into a category of choice.

Issuers can counter this trend by offering installment loans directly. Issuers using Visa’s installment loan solution can offer credit card customers an additional option to split their purchase into smaller, equal payments over a set period for in-store, online or travel purchases, the report says. communicated.

Visa’s instant financing approach would be more streamlined for existing customers, requiring no credit checks or additional agreements, while online installment loan providers like Affirm typically require buyers to provide their name, address and phone number. -mail, their mobile phone number, their date of birth and the last four digits of their social security number.

Visa’s solution eliminates this step, removing another sticking point in the payment process.

Visa’s phased payment capabilities are a game-changer by allowing issuers to take advantage of an existing payment account that consumers already have and are familiar with, instead of requiring them to go through a credit check. , download an application or open another line of credit, ”said Sam Shrauger, Visa’s senior vice president for global issuer and consumer solutions, in the statement.

Under Visa’s installment loan program, issuers could also give customers different terms for installment loans based on their risk parameters, and customers could choose to defer installment loans to the balance of. the credit card later, if they preferred.

The markets in which Visa is piloting the concept – India, Romania and Russia – offer a clue to its installment loan strategy. These are areas where consumers aren’t as accustomed to stacking their purchases on credit cards as they are in mature credit markets, and banks could use installment loans to create this behavior.

“We expect remittances to become a fundamental payment method at the cashier for domestic and cross-border payment transactions,” Shrauger added in the statement.

Visa is not the only traditional credit card provider to embark on installment loans. Chase is rolling out “My Chase Plan” next month to give bank customers the ability to make purchases with an installment credit plan, and American Express rolled out a similar approach in 2017 called Plan It, Pay It.

Amex’s program allows credit card customers to split payments for larger purchases into payment plans that are built into the total monthly outstanding balance.

The goal of these programs is to expand the credit card user base and satisfy merchants with more options, including links to loyalty programs.

An analyst doubts traditional credit card lenders will see much strength in the supply of installment loans in the mature US credit market.

“Some thin file consumers may find terms easier with point-of-sale financing of $ 300 and $ 500, but in many cases they would be better off applying for a starter card from a major card issuer.” said Brian Riley, director of credit cards. advising Mercator Advisory Group on recent installment loan products from Chase and Amex.

Visa plans to deploy the solution on a large scale by early next year through its Visa Next hub.