How might you think about implementing down payments for customers who cannot be approved for the full amount of a desired purchase?

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How might you think about implementing down payments for customers who cannot be approved for the full amount of a desired purchase?

Asked at Affirm over a year ago

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productmanager1644 · Answer 1 · 2021-02-18T01:29:24+0000

CLARIFY:
1. Are we focused on B2B or B2C payments? Focus on B2C.
2. Is there a specific market? US.
3. Channel specific? You choose.
4. Is the payment in person or digital? Digital.
5. Are we leveraging an existing payment platform / eCommerce site or building from scratch? Assume that the eCommerce platform is already built. You'd be implementing an add on.
6. Do you have specifics on the down payment on how its enacted? You choose.
BACKGROUND: Affirm is a financial technology in the US. It operates as a financial lender of installment loans for consumers to use at the point of sale to finance a purchase. They offer a consumer app that allowed loans for purchases at any retailer. They also partner with eCommerce platforms, like Shopify, to offer loans and have a partnership with Walmart.
GOAL: For this strategy, I'd like to focus on partnering additional eCommerce sites on desktop that do not have an existing Affirm partnership. The goal is to increase engagement - i.e. offer new loans to customers who are not approved for the full purchase of an item.
USER: Customers who are not approved for the full purchase amount of an item. Potentially may have their debit card declined for insufficient funds or credit card declined for maxed limit reach.
USER JOURNEY: We can focus the journey on the overall payment process on an eCommerce site. Let's review the journey of
1. User adds items for purchase to their cart.
2. User goes to make payment on item: inputs their payment details for a card.
3. User receives message that their debit card is overdrawn or credit card is declined.
4. User abandons cart or finds a different card to use.
USER PAIN POINTS:
1. User is unaware of their card will be declined.
2. User experiences negative emotions / frustration from seeing a decline.
3. User does not have another method of payment available if card is declined.
4. User spends additional time during check out process to input another method of payment.
5. User has to manually input all payment details (for multiple cards).
PRIORITIZE PAIN POINTS:
1. Pain Point Impact to User
  Unaware of card decline Medium
  Negative emotions Medium
  No alternate method of payment High
  Additional time to input new payment details High
  Manually input payment details Medium
SOLUTIONS:
1. Installment Payments: User sees options to pay for items in installments spread out over X number of days with small interest interest. Makes a down payment of X dollars / pays a portion of the installment.
2. Short Term Loan: User is offered short term loan to pay for item with specified interest rates / days to pay back. Ex. a user is offered $100 loan with paid in part every 30 days with 15% interest rate. Pays lender a down payment of $15.
3. Revolving Line of Credit: User is offered quick apply small line of credit they can draw down until they reach a certain limit. User must pay back full line of credit before they can get more. User has to make a down payment for a purchase of an item but the rest of it can be purchased on credit.
4. Barter: User inputs they are willing to pay X amount for the item. Makes a down payment of Y to show they're interested. Supplier chooes to accept purchase of item within a given threshold after a certain amount of time has passed. (Ex. supplier is trying to move merchandise out of inventory, so they're willing to accept a lower payment for an item.) If the item isn't purchased, down payment is returned.
PRIORITIZE SOLUTIONS: Because Affirm is already in the lending space, I am going to assume certain aspects of lending are already built (v. building an entirely new lending platform). Based on prioritization, I will focus on installment payments.
1. Solution Impact to User Cost to Implement
  Installment Payments High Low
  Short Term Loan High Medium
  Revolving Line of Credit Medium High
  Barter Low Medium
INSTALLMENT PAYMENT OVERVIEW:
1. User either sees card is declined / installment payment offer pops up or is automatically offered installment payments for every purchase.
2. User is told to pay a down payment of X% of the purchase item on credit or debit.
3. User agrees to terms and conditions of installment purchase for the remaining balance of the item.
4. User makes purchase.
5. User pays back lender (i.e. Affirm) in installments. Installments could be fixed 30-60-90 days with fixed interest rate.
METRICS:
1. # of customers using installment payments / month
2. # of installment payments made / month
3. Revenue from interest / month from installment payments
LIMITATIONS:
1. AML / KYC checks will be needed most likely. Need a way to run very fast AML / KYC checks on a customer to get them instant approval for the loan.

Tushar · Answer 2 · 2020-12-11T03:21:08+0000

Clarify:

Do we know what kind of agreement the customer is signing up for? Lease, subsidy, installment, full-price Interviewer: Installment
Has the customer already drilled down to the specific device that he plans to purchase? Interviewer: Yes
Do we know what kind of device is customer planning to purchase? Interview: General
Is the approval guideline related to customers' credit or regulatory or company policy? Interview: credit

Thank you. So, I would assume that the customer is planning to purchase say an iPhone 12 device on installment and wants to finance the full amount. But the way credit rules are set up currently, the customer creditworthiness is not enough to get approved for the full price of the device. Does that sound right? InterViewer: Sounds good

So the customer wants to buy iPhone 12 and wants to finance the full price. As the credit profile is not going through, I would check if the customer would be interested in putting an upfront payment for some amount. This is because I would want to increase customer acquisition that would further improve the company revenue.

Looking at the cut-throat competition in the market by phone companies to acquire or poach customer, I think that a down payment capability extension to the customers would be a great value add for the company. Customers would be able to purchase their preferred their preferred device by making upfront payments and financing the amount that gets approved corresponding to the credit profile.

Also, there could be situations where customers are planning to make other purchases on finance and they do not want to put all their creditworthiness against this device. The downpayment furthers provides the customer flexibility and a sense of euphoria of getting their favorite device.

The down-payments and finance amount interest rate can further be tweaked depending upon device, promotions, loyalty, demographics ,and leveraging AI to calculate the propensity of default.

Looking forward to the feedback. Thank you

Pain Point	Impact to User
Unaware of card decline	Medium
Negative emotions	Medium
No alternate method of payment	High
Additional time to input new payment details	High
Manually input payment details	Medium

Solution	Impact to User	Cost to Implement
Installment Payments	High	Low
Short Term Loan	High	Medium
Revolving Line of Credit	Medium	High
Barter	Low	Medium