Anticipation of instalments

Making a purchase on your credit card in installments is a Brazilian phenomenon. Consumers do this mainly for two reasons: they don’t have enough money to pay entirely or the merchant doesn’t give them any discount to do so.

Observing the interaction between a merchant and consumer at the point of sale in Brazil is interesting. Typically, the merchant asks the consumer if he or she would like to pay upfront or in installments. The consumer often then inquires, “Is there a discount if I pay upfront?” The reply is usually “no,” and the rational consumer decides to pay in the greatest number of installments possible or decides to forego the purchase. Neither party is completely satisfied with the outcome.

As we observed and thought through this exchange, two questions came to mind. First, why is this back and forth so awkward and why does the merchant choose not to act in his/her best interest? And secondly, why would a customer choose not to pay in installments if there is no discount?

After our observations at the point of sale, we concluded that the back-and-forth between the consumer and merchant was completely unnecessary. We decided to fix it. If the merchant didn’t offer a discount to buy something upfront, we, Nubank, could offer the consumer a discount for bringing the installments to present value.

It was a win-win-win solution – the consumer was ecstatic that they got a discount and the merchant was happy because they would no longer lose purchases for not giving a discount. Finally, Nubank also won because the feature helped us increase our customer loyalty and also provided us with better cash flow. The uncomfortable exchange between merchants and consumers was disrupted and all parties emerged winners.

After we launched the anticipation of installments feature, it was intriguing to see that consumers started making purchases on installments more frequently. Even more interestingly, we discovered why some Brazilians choose not to purchase on installments. Firstly, they didn’t want to feel “indebted” and were scared of losing control of their finances especially considering the astronomically high interest rates in Brazil. We solved this by empowering consumers to anticipate when and as frequently as they wished via their app. Secondly, although it is quite common, there is a bit of a stigma around purchasing on installments. In some social situations in particular, a consumer may choose to pay upfront to not look as if he/she doesn’t have enough money. We had an impact on this as well and post-launch we’ve heard customers brag to their friends, “I’m purchasing on installments because Nubank gives me a discount.”

Overall, the anticipation of instalments feature was a great success. It disrupted the sub-optimal interaction between merchants and consumers, created a win-win solution for all parties involved, empowered consumers and challenged a stigma.