The company is offering consumers a choice between buying the machine outright for a discount—or stretching the payments over nine months. The enticement looks to be effective. Since Shop.com introduced the option last July, average order sizes have increased from $123 to $140 and shoppers are buying more big-ticket electronics, said Eddie Alberty, vice president of strategic partnerships at the Greensboro, North Carolina, company.
"We’re seeing more repeat customers from PayPal Credit," he said.
Expect to see a lot more of these deals online as companies like PayPal, San Francisco startup Affirm Inc. and Swedish payments processor Klarna AB push into a $2.6 trillion consumer credit market long dominated by the banks and credit-card companies. So far, Amazon.com Inc. hasn't followed suit in the U.S., but its U.K. arm has introduced installment plans on select purchases of more than 400 pounds ($567). The goal is to make credit applications as quick and convenient as clicking the buy button.
The digital payments companies are keen to grab a commanding share of the mobile shopping market, which is finally catching fire thanks to an explosion of new services including the money-transfer app Venmo. As spending shifts to mobile devices, PayPal, Affirm and Klarna see an opportunity to change charging habits.
A key target is millennials, who tend to shop from their phones and are starting to get married and buy big-ticket items—furniture, TVs, washing machines—that are typically paid off over time. Another is shoppers who have difficulty getting credit, including immigrants and people just starting their careers.
As more and more Americans shop online, PayPal and its ilk could have an advantage over the credit card companies because the pitch to consumers comes right before they’re ready to pay.
"You get solicited for credit cards when you are home going through your mail or surfing the Web," said Gil Luria, an analyst at Wedbush Securities Inc. "PayPal, Klarna and Affirm offer credit at the exact moment you need it. I really want that TV. Do I have enough to purchase it? I can get it now and not pay any interest for six months."
Inevitably, there are concerns that by offering more credit online PayPal and other upstarts will encourage low-income shoppers to get in over their heads. Depending on an applicant’s credit-worthiness, Affirm interest rates range as high as 30 percent; fixed-rate credit cards currently charge 13.1 percent on average, according to Bankrate.com. At the same time, the ease of getting credit—just push this button—could lead some consumers to skim over fine print explaining that missing a payment incurs a penalty. PayPal, for example, charges a late fee of $35—which can turn an interest-free promotion into a costly transaction.