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How Does Splitit Make Money? The Splitit Business Model In A Nutshell
Splitit is a fintech company founded by Israeli entrepreneurs Gil Don and Alon Feit in 2009. The platform was initially created to allow consumers to use existing credit to make BNPL purchases.
Splitit relies on transaction fees to make money, with the exact fee depending on how and when the merchant chooses to be paid.
Splitit does not charge consumers for late or missed payments. Nor does it charge interest on purchases. Instead, the company relies on transaction value and mass consumer uptake to make money.
Origin Story
Splitit is a fintech company founded by Israeli entrepreneurs Gil Don and Alon Feit in 2009.
Don and Feit used their extensive experience in finance and information technology to create a somewhat unique platform in the buy-now-pay-later (BNPL) space. The pair envisioned Splitit to be a service enabling consumers to use their existing credit to break a purchase into smaller, interest-free purchases.
To that end, they filed a patent for “a system and method for facilitating credit transactions, which may allow for the division of a given purchase or cash-withdrawal transaction amount, into periodical installments by enabling the financing of said transaction.”
After five years of hard graft, Splitit was launched as PayItSimple in the United States in 2015. The launch coincided with the company moving its headquarters from Tel Aviv to New York City. At the time, very few companies in North America were offering similar services.
In May 2015, the company secured a $10 million round of funding. PayItSimple then expanded into the British market and rebranded as Splitit two months later. In 2018, the platform added debit card payments and became integrated with platforms such as Magento and Salesforce. Emulating the path of many other BNPL players, the company held a $12 million IPO on the Australian Stock Exchange in January 2019.
Since 2019, Splitit has expanded rapidly as larger competitors such as PayPal look to establish themselves in the BNPL market. The company secured millions in successive rounds of funding and established additional presences in Japan and the Middle East, among other initiatives.
Splitit’s primary source of revenue is transaction fees, which are paid by the merchant when a customer selects Splitit as a payment option either online or in-store.
Transactions fees vary according to how quickly the merchant wants to receive their money and the country they operate in.
Generally speaking, there are two transaction fee structures:
Standard – where the merchant is paid as the consumer pays their monthly installments. The transaction fee is 1.5% plus $1.50 per installment.
Funded – where the merchant receives the full amount of the purchase up front. Here, the transaction fee is 3% plus $1.00 per installment.
In addition to offering credit as a BNPL option, Splitit differentiates itself from other providers by not charging fees to consumers for late or missed payments. What’s more, Splitit does not charge interest on purchases.
To maximize revenue, the company instead focuses on increasing the total transaction value and the number of shoppers utilizing its platform.
Started as a pay-later solution integrated to merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interests earned from the consumer loans, when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.
Afterpay is a FinTech company providing as a core service the “buy now pay later” solution. When a consumer purchases a product, Afterpay pays the seller and asks the consumer to pay 25%. The remaining 75% is paid in three, fortnightly installments that are also interest-free. Afterpay, in turn, makes money via merchant and late fees.
Quadpay was an American fintech company founded by Adam Ezra and Brad Lindenberg in 2017. Ezra and Lindenberg witnessed the rising popularity of buy-now-pay-later service Afterpay in Australia and similar service Klarna in Europe. Quadpay collects a range of fees from both the merchant and the consumer via merchandise fees, convenience fees, late payment, and interchange fees.
Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customers’ accounts.
SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.
Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.
Venmo is a peer-to-peer payments app enabling users to share and make payments with friends for a variety of services. The service is free, but a 3% fee applies to credit cards. Venmo also launched a debit card in partnership with Mastercard. Venmo got acquired in 2012 by Braintree, and Braintree got acquired in 2013 by PayPal.
Fintech business models leverage tech and digital to enhance the financial service industry. Fintech business models, therefore, apply tech to various financial service use cases. Fintech business model examples comprise Affirm, Chime, Coinbase, Klarna, Paypal, Stripe, Robinhood, and many others whose mission is to digitize the financial services industry.
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