Who carries the risk in an installment payment?
With a split-payment provider, the provider pays the merchant upfront and carries the credit risk. With card installments, the card issuer does. When a merchant runs its own installment plan, the merchant carries the risk of unpaid installments.
In detail
It depends on who provides the plan.
Split-payment provider
The provider pays the merchant upfront, minus a fee, and collects the installments from the shopper. It carries the credit risk: if the shopper stops paying, the provider absorbs the loss, not the merchant.
Card installments
When a card purchase is split into installments, the card issuer carries the credit risk, as it does for any card spending. The merchant is paid according to the acquiring arrangement in place.
Merchant-run plan
When a merchant runs its own installment plan, charging the shopper on scheduled dates, the merchant carries the risk of unpaid installments. It also takes on collection, retries and, potentially, credit regulation.
Choosing between them
A provider plan costs a fee but removes risk and collection work. An in-house plan avoids the fee but turns the merchant into a lender, with the risk and obligations that come with it.
What it means for payment operators
Your merchants may use both models. Provider plans connect as payment methods through contracts. In-house plans run on recurring payment infrastructure, with scheduled charges, Retry policies, network tokens that survive card reissuance and reporting that shows which installments are paid and which are past due.