Why Card-Linked Installments is a Better Form of BNPL With Nandan Sheth, CEO of Splitit

Speaker A: There are multiple markets in the world where installments on a card has been around for 15, 17, 20 years. So number one, there are many proxies that showcase that card length installments are uh, real and can scale very quickly. Based on that, what we are changing a little bit is we wanted to build a bit of a merchant network and then we wanted to go back to the issuers and say, okay, without any help from you guys, we have created this market for card linked installments. Now issuer A, B and C, you have the opportunity to play at the checkout and compete directly with a fintech.

Speaker B: This is the FinTech one on one podcast, the show for fintech enthusiasts looking to better understand the leaders shaping fintech and banking today. My name is Peter renton and since 2013 I've been conducting in depth interviews with fintech founders and banking executives. My next guest on the show is Nandan Sheth, the CEO of Split It Now Nandan has spent 25 years in payments and fintech, building three growth companies along the way. Harbour Payments which sold to American Express and Acculink which sold to Fiserv. And now he's onto his third growth company, Spliddit. In our conversation we dig into what makes Spliddit different from traditional bnpl, a card linked instalment model that taps the credit consumers already have with no new loan and no underwriting. We talk about the merchant funded 0% economics, why installments could become the default in agentic commerce. That was super interesting. And Splitit's backing of uh, Google's universal commerce protocol. We also cover the overlooked B2B opportunity, the new Splitit Go product for in person services and where Nandan sees card linked installments heading over the next three to five years. Now let's get on with the show foreign. Welcome to the podcast, Nandan.

Speaker A: Thanks for having me Peter. Delighted to be here.

Speaker B: My pleasure. So let's get started by giving the listeners a little bit of background about yourself. You've been at some of the biggest names in financial services. Why don't you tell us a little bit about uh, the high points of your career to date.

Speaker A: I moved to the US about 25 years ago, grew up in the UK so over the weekend my team England won. So I'm quite excited but have been in payments and fintech ever since I moved to the U.S. i have been involved with three growth companies. One of them was M sold to American Express called Harbor Payments. Second one, Acculink was sold to first Data, uh, Fiserv, and then the third Growth Company Split it, the one that I'm working on right now, I enjoy our space. I've been in it for quite a while. So I've made a ton of mistakes and my objective is not to replicate those mistakes at Split It.

Speaker B: You know, I did interview your predecessor back in, I think it was 2021 so like five plus years ago now. But I'm curious about what attracted you to Split it in the first place.

Speaker A: Yeah, so when I was at fiserv, um, I was uh, responsible for E commerce and omni channel commerce at Fisev and had dealt with a variety of different BNPLs. We had explored Splitit and being a card payment geek, I quickly realized the value proposition being very different and the benefits it could create for issuers and banks. So to be candid with you, I fell in love with the product. There is no underwriting, there's no Social Security number required. You don't have to put in a debit card for repayments. It's really one click installments, which is super unique. And I had a feeling that AI would be around the corner when I took the job and felt the reduction in friction would become even more important with both autonomous and AI enabled commerce. So that's one of the key reasons why I decided to join Split It.

Speaker B: You know I think one of the like about splitit is that you're using the, the credit that a consumer already has on their credit card. So there's no need to take out like a new loan or a new um, installment plan or anything like that. So maybe just touch on how it works.

Speaker A: Absolutely. So our focus is on the card loyalist. We're not going after the cohort where they need credit. So we're not focused on the credit needy market. I think Klarna firm afterpay do a fantastic job of curating a solution for that segment. The card loyalist is very focused on accelerating their usage of the card and aggregating their payments on the card primarily because it's the habit, number one. Number two, they love the protections and number three they love the rewards. So based on that, the way our product works is you'll go to Blue nal, uh, one of our clients and you'll be making a $4,000 purchase. Blue null would have explained to you that you can do 0% financing or 0% installments. When you get to checkout. Let's assume you have a Visa, MasterCard, American Express, Diners or Discover card already on file. Your installment options will come up, um, right under where you typically put in your credit card details and all you're doing is selecting one of those and then the transaction will approve. Our approval rates usually are very similar to standard cardinal present rates. So between 85 and 95%, even at a much higher AOV. The product is very simple. And if you think about the target that we're going after, many of these individuals, Peter, have their credit locked up. So they're not going to open their credit for buying a mattress for $1,000. They're much more likely to use a card. And if you can put installments on that card, give them 0%, then they typically buy more. And just to give you one stat, there's almost $3.5 trillion worth of credit just in the United States that is available on these cards. And most consumers have between 30 and 60% of their credit that's unused.

Speaker B: So then what's the business model? How are you, who pays spliddit and how do the economics work?

Speaker A: So the merchant pays us in MDR. That MDR affords a 0% plan for the consumer. So for about 98% of our business, Peter, the merchant funds a 0% installment for the consumer. Consumer does not typically pay any apr, any interest. And we don't have the notion of late payments. So if we cannot collect After a 30 day cycle, we just write the transaction off. So it's a very unique model. It's uh, very attractive to the consumer or the buyer or the shopper. The merchant uses it to drive conversion. And with the rates that we offer the merchant, it's no different to doing a money off percentage or no different from any other marketing tactics that they're using. So usually the budget comes from marketing. The consumer pays nothing, the consumer gets an instant installment. RAOV, Peter, is about $1,300 on average across our portfolio standard BNPL AOV. Ah, average order value is between 250 to $300. What that tells you is consumers do buy more when they use their card for installment.

Speaker B: And so for that $1,300 transaction, what does the consumer see on their statement after they've done that purchase?

Speaker A: Great question. So number one, they'll see the first installment, let's say it's a paying, uh, 12 and the first installment is one, uh, hundred dollars. Okay. They'll see that first installment, what we call an auth, and capture directly on their statement for that month, 30 days. From that point we make the second charge, so on and so forth. So they will incrementally see the charge almost like a recurring payment or a subscription payment on their existing credit card. In addition to that, we give them notifications through email and through text and they can even go to a portal, Peter, and um, put in a new card, pay the balance off in full, whatever they may want to do. So it all actually happens within the card statement with some notifications driven by split.

Speaker B: And so then on the merchant side, are you going out one by one to the merchants? And I could assume if you're doing that, you're focusing on the larger merchants, right?

Speaker A: No. So we have a variety of different models, but the most utilized model is the merchant gets paid upfront, we net out our fees, and the merchant gets their payment way before we collect the installments. We do have a product which is lower cost that allows some merchants to do what we call split payments, where we pay as we get the installment in and they get the first two payments initially. But the most utilized version of the product is where the merchant gets paid in full upfront.

Speaker B: And so is most of your volume coming from online? I mean do you have like an in store equivalent or an offering there?

Speaker A: Most of our volume right now is digital. However we have embedded split it within the Samsung Wallet. You have a Samsung phone, or if you use a Samsung wallet similar to the GPAY wallet or the Apple pay wallet, we're fully embedded in that. And in that scenario, all transactions are point of sale. So anywhere where a Samsung Wallet works, which is 98% of POS merchants, you can go to that merchant, make a purchase and do an installment or schedule an installment prior to the purchase or while you're making the purchase, you can select installments. So point of sale, we believe Peter, is a very big market for us because the more traditional BMPLs have a little bit more friction and it's hard to execute that, uh, in a, uh, face to face scenario when you've got a line full of people. So we've integrated into two POS providers and we'll be announcing a very large, what I call a direct POS implementation across about 12,000 auto shops and auto service providers across the United States. That will be our big first direct POS implementation. But we've had a lot of POS experience through our Samsung Wallet integration. Right.

Speaker B: Well that also means that people can use it for any purchase whatsoever.

Speaker A: There is no dependency, uh, there.

Speaker B: I want to talk about agentic commerce because this is something that's just getting started. We're building the infrastructure for it in real time today. And I was reading about your, uh, backing the Google's universal commerce Protocol ucp. Tell us a little bit about that and uh, what role you think installments are going to play in agentic commerce

Speaker A: as we talk to retailers and merchants, Peter, there's a lot of confusion around agentic and AI enabled commerce. If I'm really candid with you. The retailers and the merchants are trying to figure out how to play. So our role in the equation or our premise in the equation is that retailers are going to find it hard to get commoditized based on price. When I do discovery on an LLM such as Gemini or OpenAI or chat GTP and what I mean by that is when I do that discovery the retailer may have a value proposition that's very different to just being the lowest price and fastest delivery. So how do you get a retailer to exhibit or profess that value when Nandan is looking for a green knitted polo? And the way you can start to think about that is to offer 0% installments in addition to fast delivery and a fair price. So we've actually got a user group of uh, merchants. One of my board members um, is part ah, of a large merchant team and what we've discovered is if we can enable a solution that provides additional value that does not make that transaction a mercenary or cost based transaction or commoditized transaction, then the merchants are very interested in how they can participate in that. So what we're going to do with the Google protocol is we're going to embed our installments capability using that framework and adhering to Visa, MasterCards, chargeback related enhancements and then we're going to allow merchants to adopt that. So when commerce within the LLM surface becomes a reality they'll have the ability to prioritize some of those value added features including installments directly on that Google surface or that OpenAI surface.

Speaker B: That is really interesting because the way I'm thinking about it is, you know, when we move to agent E Commerce and you know it's inevitable, it's just a case of how big it's going to be. This is an objective decision that an agent is going to make. And if you're offering a installment product and the others are offering just uh, full money down for, with a credit card, I mean the agent is going to want to I imagine recommend that you do the installment products. It's sort of a, it's a no brainer. So is that how you're thinking about it?

Speaker A: Certainly consistent with our thesis, the reality of how we scale is going to be really the litmus test. But if you think about it, when you get to more agent based commerce, to your point, not only is this going to be relevant with the B2C use case, but if you think about B2B more b buyer buying from maybe a large E Commerce or, or a large supplier. So my wife's a dentist and she spends quite a lot at, you know, a combination of Patterson and Henry Schein. In the future, if she had an agent that has the ability to look at multiple sources but then come back and say Dr. Sheth, yeah, the price is about the same with this other provider but you can put it on 12 months and she's got to pay $4,000 for a new handpiece that just broke down. There is a really interesting small business still large supplier B2B use case that we're also exploring with our partners.

Speaker B: Uh, that's cool because I don't think people are Talking about the B2B use case here enough. Um, everyone's talking about consumers and there's going to be a big segment of consumers that are not going to use agentic commerce until it's very well established for many, many years. Because consumers, a lot of consumers like to shop, but small business owners don't. They're always busy. They've got too much going on. If you can, I could see that agentic commerce gets a real kind of foothold in the small business agentic commerce market through that use case you just described.

Speaker A: I think there's a time issue and then there is a working capital issue for many dozens. Right. So if you can solve both of those through an agent, I think the use case there frankly is a little stronger than Nandan buying a polo. Sure. Right. Uh, I'm with you. We're exploring.

Speaker B: Both, both are going to be part of our future. I think everyone agrees with that. How do you kind of think about AI kind of agent, um, make and recommendation and the payment reliability piece of that? Because that is going to be a big part of how this infrastructure is being built.

Speaker A: I think, uh, there's been a lot of conversation around that Peter. I mean you do this day in, day out. I know you've heard a lot of the initiatives spearheaded by the network, spearheaded by merchant community and also spearheaded by the AI LLM companies. But I think the key point is going to be how do you deal with repudiation or an exception where the agent makes a transaction happen and then the business owner or the consumer that has the agent out there doesn't like that decision and that as you know, has the propensity of creating chargebacks and a lot of expense and a lot, uh, of new processes for both merchants, networks and issuers. And I think both Visa and Moscow, we work with both quite closely. They've got a really good handle. Now the question is going to be inherently who's going to take the risk? Is the merchant going to take the risk? Is the shopper going to take the risk? Uh, is there going to be some verification, validation that happens before the agent executes? And as the consumer, if you don't do the validation, maybe you, you take the risk. I think it's all being worked out, but I'm fairly confident it's going to get worked out based on what I've seen and some of the working groups that we're on, there are some really smart people and there is a desire across the industry to come up with a solution when it's an automated purchase.

Speaker B: And so let's talk about the AI recommended bnpl, because you guys just did a report recently with Payments Intelligence and tell us a little bit about some of the key takeaways from that report.

Speaker A: I think thematically, not to get into the specific numbers because I'd love for people to read the report. It's a quick read. But I think thematically, number one, using an AI capability for discovery is absolutely here. And it's not just going to Gemini, but if you go to Amazon. I personally used Alexa multiple times on the Amazon interface. For the consumer, I just find it easier than sifting through the variety of choices that I have. So I think, number one, discovery's here, it's here to stay. And I think discovery is going to get better and there's going to be more of a ubiquitous, ubiquitous model for discovery and a specific layer either at the merchant or at the platform. Number two, I think consumers are interested in pay later or embedded financing solutions across the board. No different to an AI experience. So I think there is a desire to embed pay later solutions within AI, not just from companies like us because we've got a vested interest. But when I talk to Google, who's a strong partner, they get it because they understand that it's the way people spend. So number two, I think pay later embedded financing solutions will be within the shop of flow through an AI enabled platform purchased. Number three, as you think through how that's going to be executed and what the key functionality requirements are, one of the elements that that report showed was being able to do this without creating a new loan seems to be emerging as something that's Important, especially for Gen X, Gen Y. As you know there are much more debit card users. They're into transactional credit. They're not into trying to revolve their balance like their parents may have in the past. So I think transactional credit becomes super important. But now the difference is going to be are you going to want to do that through an existing card at an existing bank or are you going to a fintech to get that transactional credit service? And to be candidly, I think there are going to be two camps. There's going to be a camp that's going to love their bank, that likes their rewards. Probably they come from your background and my background. They understand the protections, they understand that a refund can be done a lot more quickly on their existing card. But there's also going to be a segment that's going to be requiring credit and it's not a segment that has credit. So my thinking is there's going to be new underwriting models that are going to be created to make it a lot faster than it is today in terms of consuming the credit. So I think pay later, embedded financing solutions have to be part of the equation. I think there's going to be two more frictionless experience selfishly is going to win from my standpoint. But I think there are two camps. There's going to be the card loyalist and there's going to be the credit needy and both of them are going to be serviced and I think AI is going to change how underwriting happens frankly for both.

Speaker B: So I want to go back to talk about this um, face to face sales because I was reading about the you had a press Release that said $4.6 trillion services economy in which decisions are made in person. Now you said your wife is a debt dentist. Uh, she's part of that in person, um, economy and that is being underserved I think by installment loans. And so how are you trying to address that particular part of consumer finance?

Speaker A: We just launched a product called Split itgo. It's basically an installment capability for the servicing industry, whether it's home services or other types of services where you typically have a purchasing decision face to face. In many cases it's either at a shop or at your home. We really like that market. We also agree with you that it's underserved. So splititgo allows any company that has field services and field sales reps and allows them to do an installment there and then without any kind of credit check which is super unique because we have a large Window installment replacement company. They would sit there with the customer, uh, they would get their credit application, they would send it back. There'll be tier one, tier two, tier three financing options versus saying okay Nandan, your deposit is X. You can put that deposit on installments right now. Give me your favorite credit card. I'm going to tap that credit card or I'm going to insert it, I'm going to take a picture of it, whatever it may be and you'll get an instant qualification back to you. I think there's a huge opportunity there. So I think you'll see that the auto service and auto parts partner that we have, it's one of the largest software companies in the space. So instead of going, as you know this market's a little fragmented so you have to go through platforms. So we're actually focused much more on going through platforms to get to those service providers. And very soon we'll announce a fairly major deal in the auto space. We've got another one in general home, um, services, a very large platform that has about 10,000 companies on it that are in a variety of different service capacities from H vac to plumbing to gutter replacement.

Speaker B: I want to kind of close with uh, looking out and it's hard right now to predict the future, probably harder than it ever has been because things are changing so fast. But I would like you to kind of take a look at sort of this AI driven commerce in person transactions. What we've been talking about today, looking out sort of three to five years, does this sort of card linked installment product that you guys offer, does uh, that become like a default or is this still going to be a niche or how does it, what's it look like in three to five years?

Speaker A: Let me back up just a little bit and say if you look at the card market in Brazil, which I'm sure you're familiar with 60, 70% of those transactions or already installment transactions on that card. So there are multiple markets in the world where installments on a card has been around for 15, 17, 20 years. So number one, there are many proxies that showcase that card linked installments, ah, are real and can scale very quickly based on that. What we are changing a little bit is we wanted to build a bit of a merchant network and then we wanted to go back to the issuers and say okay, without any help from you guys, we have created this market for card linked installments. Now issuer A, B and C, you have the opportunity to play at the checkout and compete directly with a FinTech you may have post purchase installments, but that's not when the decision's typically made. The decision is made at the point of purchase. So number one, I think you'll see many more issuers participating with orchestration layers like Spliddit. Hopefully we dominate but there could be others in the future where instead of Spliddit taking the risk and pre funding, the merchant splitit plays an orchestration role. So one of the first issues we're doing this with is Citibank. They have a very large credit card portfolio and their cards and their plans are being orchestrated through our engine. So number one, I think you'll see many more issuers at checkout offering installments through technology providers like Splitter. Number two, I think there is a huge market around debit, so right now we've only focused on credit. But many of the younger generation is really not as uh, credit card centric as me and you are. And embedding installments into a debit card becomes a very important utility to compete with a Klarna who just, I think over the weekend announced that they're going to be a licensed bank, not just in Europe, they're going to be a licensed bank in the US So it behooves these issuers who've got the relationship, but those consumers are looking at fintechs. Why not replicate or make better the product that they're looking for and bring it inside of their four walls. So number two, I think you'll see more debit card linked installments also. And number three, I think you'll see very unique cards that are either charge cards or credit cards that may not have just a revolver functionality which is what most cards have today, but they'll allow you to do transactional credit using AI, being AI native directly on the card. So as it relates to kind of our world, that's kind of where I see things. In the future the banks are going to get a lot more involved. The networks love what we're doing, they're going to get more involved and I think we just become that utility or the technology provider, uh, that takes the transaction to the point of sale to field services and to digital channels.

Speaker B: Wow, it is exciting times. Uh, there's so much change happening and I could see you guys, uh, are really well positioned. People have shown they like installments. Anyway, thanks for coming on the show Nandan. Really appreciate your time and best of luck.

Speaker A: Really enjoyed it. Thanks for having me.

Speaker B: M. I like the way Nandan framed the market splitting into two distinct camps. The card loyalists, people like me who love their rewards and protections and have credit sitting unused, and the credit needy who genuinely need a new line to make a purchase. We tend to lump all of BNPL together together, but those are two very different customers with very different needs. And what I found most interesting is his prediction that AI is going to reshape underwriting for both groups, making transactional credit faster and smarter. If he's right, the winners will be the players who can serve each camp on its own terms rather than forcing everyone through the same funnel. Anyway, that's it for today's show. If you enjoy these episodes, please go ahead and subscribe, tell a friend, or leave a review, and thanks so much for listening.