Brazilian consumers are used to financing their purchases that have been made with credit cards. Installment payments, or “parcelado” as they are called in Brazil, are used by 62% of buyers who purchase with credit cards every month, according to Abecs the Brazilian Association of Credit Card and Services Companies (Associação Brasileira das Empresas de Cartões de Crédito e Serviços). When it comes to the e-commerce environment, the latest Webshoppers report indicates that nearly 58% of payments were made in installments in 2016. The popularity of this payment method is justified because it increases the purchase power of the vast number of consumers from lower-income classes in the country. Thanks to the option of paying in installments, a bigger portion of the population gets easier access to higher price goods.
How do Installment Payments Affect Credit Card Limit?
In many cases, buyers could not get access to certain services and goods without the option of financing the purchase. Overall, most Brazilians overspend and the credit card represents nearly 72% of the country’s households’ debt. Despite that, merchants do not assume any non-payment risk for payments with credit cards, as the expenses are covered by the issuing banks, who set the limit for the credit cards issued. In fact, this is one of the reasons why credit card payment processing is often more expensive than that of other payment methods.
Still, how do installment payments affect consumers’ credit card limit? There are two modalities to calculate the credit card limit when purchasing in installments. According to the Brazilian Central Bank, it is up to each bank to define the method to be used.
- Installment amount: in this scenario, only the amount due in a given month will be deducted from the limit. For instance: a consumer has a total limit of 1,000 BRL and makes a purchase of 400 BRL, opting to pay in four installments of 100 BRL. In this case, the 100 BRL will be deducted from the total limit month after month until all the installments are paid. Therefore, during the four months, the consumer will have a limit of 900 BRL. This modality increases the risk of debt for consumers, as they can easily end up compromising more of their incomes than initially intended. However, it is a good option not to jeopardize all the credit card limit for several months in the event of a high value purchase.
- Outstanding debit: unlike the previous option, this method subtracts the outstanding debit amount from the card limit. Let’s take the same scenario from above: a total limit of 1,000 BRL, a purchase of 400 BRL paid in four installments of 100 BRL. In this case, right after the purchase the total amount will be deducted from the limit, leaving the cardholder with 600 BRL left of limit. After paying the first installment, 100 BRL will be added to the limit, which will leave it at 700 BRL, and so on month after month until all installments are paid and the full limit is restored. This modality prevents consumers from overspending, giving banks the reassurance that they will receive the payments.
Offering installment payment is key to succeeding in the Brazilian e-commerce market and PagBrasil allows merchants to offer up to 12 installments on their online stores. Regardless of the modality offered by their banks, it is undeniable that Brazilian consumers expect to be able to pay in installments, particularly when purchasing higher value items.