Some changes you need to know about Shop Pay Installments are coming

By The MixDex Team Article may include affiliate links

Shopify’s directly integrated installment payment plan feature will automatically be activated on all eligible stores come Oct. 15, 2021 — plus there’s a fee hike coming.

Shop Pay Installments, a buy now pay later payment option, started testing in July 2020 and rolled out to eligible U.S. based stores earlier in 2021.

It’s powered by Affirm, who offers its own standalone BNPL service similar to Klarna, Afterpay and Quadpay.

Emails started going out to store owners in July 2021 that effective Oct. 15, 2021, eligible stores will have the feature automatically activated.

To be eligible, stores have to be English language, U.S. based stores selling eligible products. Installments are only available on orders between $50 and $1,000, and merchants cannot control that range or what products are eligible.

Also effective Oct. 15, 2021, Shopify will start charging 5.9% plus 30 cents per installment order. It had been charging its normal 2.6% plus 30 cents rate for users on the “Shopify” plan.

It’s worth noting this is not an additional 5.9% or 30 cents (in other words, transactions will not be be charged at 8.5% plus 60 cents), but it obviously could affect some businesses’ bottom lines.

Put simply, it means that a $100 order would have fees of $6.20 instead of $2.90 — or $3.30 more. That’s a decent chunk, but it can make sense for stores selling higher priced items or those with some flexibility in pricing.

Shopify is requiring eligible stores to opt out of the feature, which can be done at any point under payment settings.

That said, BNPL options can often lead to both increased order counts and value since customers don’t have to fork over the money all at once (most BNPL split the total cost of the order across a set number of payments, usually around three or four).

Shopify says about 25% of its merchants offering installments saw 50% more orders — and there was a 28% decline in abandoned carts.

Customers are not charged an extra fee or interest for using installments via Shop Pay and merchants get the entire purchase price, less fees, upfront.

Since Shop Pay Installments is essentially an unsecured loan, both Shopify and Affirm could be on the hook if they can’t ultimately collect some or all of the remaining three payments.

Since payments are billed to credit or debit cards, there’s the potential added expense of having to chase down customers whose cards end up getting declined or canceled after one or more installments are processed.

If the full amount ultimately cannot be collected, Shopify merchants still get to keep the full cart total less the fees they got at the time the order was placed.

The companies also have the normal expenses of processing payments online — including bank, gateway and network fees plus the risk of chargebacks, fraud and other challenges.

The increased fees also help cover what could be compared to interest on the “loans.”

In addition, BNPL options have faced criticism from consumer advocates, who say the programs can encourage people to spend more than they can afford — especially when the lower monthly payment price is emphasized more than the total due. Since the charges can ultimately be made to a credit card, the model also has the added effect of potentially increasing credit card debt.

Many BNPL options only do “soft” or “hat tip” credit checks, if any, so there’s likely increased risk of debt going bad and offering the payment plans to customers who aren’t financially sound.