How Does splitit.com Work?

Splitit.com operates on a unique model that differentiates it from traditional Buy Now, Pay Later (BNPL) services, primarily by leveraging a consumer’s existing credit card.

The fundamental process allows shoppers to make purchases in installments without applying for new credit or incurring interest directly from Splitit.

This mechanism, while seemingly straightforward, involves a careful interplay between the consumer, the merchant, and the credit card issuer.

Understanding this process is crucial, especially when evaluating its ethical implications from an Islamic finance perspective.

The Shopper’s Experience

For the end consumer, the process is designed to be seamless and familiar, integrating into the existing online or in-store checkout flow.

• Choosing Splitit at Checkout: When a shopper is ready to make a purchase, they select “Splitit” as their payment option, often alongside other choices like direct credit card payment or PayPal.
• Using Existing Credit Card: The shopper then enters their existing Visa, Mastercard, American Express, or Discover credit card details. This is a key differentiator – no new application, no credit checks by Splitit.
• Pre-authorization of Full Amount: Splitit places a pre-authorization hold on the shopper’s credit card for the full purchase amount. This hold reduces the shopper’s available credit limit but is not an actual charge.
• First Installment Charged: Immediately or shortly after the purchase, the first installment is charged to the credit card.
• Subsequent Monthly Payments: Each subsequent month, Splitit charges the agreed-upon installment amount to the same credit card until the full purchase price is paid off. The pre-authorization hold is reduced with each successful payment.

The Merchant’s Integration

Merchants integrate Splitit into their e-commerce platforms or physical point-of-sale systems to offer the installment option.

• Plugin/API Integration: Splitit provides plugins for popular e-commerce platforms (like Shopify, Magento, Salesforce Commerce Cloud) or a direct API for custom integrations.
• White-Label Branding: The integration is designed to be “white-label,” meaning Splitit’s branding is minimal, and the installment option appears to be a natural part of the merchant’s checkout experience.
• Risk Mitigation: Merchants receive the full payment upfront from Splitit, minimizing their risk associated with customer default on installments. Splitit assumes the collection risk.
• Payment Processing: Splitit works with the merchant’s existing payment processor, simplifying the backend operations for the merchant.
• Increased Sales & AOV: By offering flexible payments, merchants aim to convert more sales and increase their average order value, as customers are more willing to purchase higher-priced items.

The Role of the Credit Card Issuer

This is where the critical ethical considerations arise, especially concerning riba (interest).

• Underlying Credit Facility: The entire Splitit model relies on the credit facility provided by the credit card issuer. The pre-authorization and subsequent charges utilize the shopper’s existing credit limit.
• Interest Risk for Shopper: While Splitit itself does not charge interest, if the shopper does not pay their entire credit card balance (including the Splitit installments and any other charges) in full by their credit card’s due date, they will incur interest charges from their credit card issuer. This is the inherent risk of using an interest-based financial instrument.
• Rewards & Benefits: Shoppers continue to earn any credit card rewards or benefits associated with their card, as the transactions are processed as standard credit card purchases.
• Credit Utilization Impact: The pre-authorization hold can impact the shopper’s credit utilization ratio, which might affect their credit score if the ratio becomes too high.
• Fraud Protection: Shoppers retain their credit card’s built-in fraud protection for Splitit transactions.

How Splitit Makes Money

Splitit’s revenue model is primarily based on merchant fees, not consumer interest, which is a common point of confusion or misinterpretation.

• Merchant Fees: Splitit charges merchants a fee for each transaction processed through its platform. This fee is typically a percentage of the transaction value.
• No Consumer Interest (Directly): Splitit’s value proposition to consumers is “no interest, no fees,” making it attractive compared to options that explicitly charge interest.
• Value Proposition: The value for merchants comes from increased sales, higher conversion rates, and the ability to offer a competitive payment option without managing installment collections themselves.

Ethical Implications from an Islamic Viewpoint

Despite Splitit’s claims of “no interest,” the fundamental reliance on credit cards means that the system is built upon a foundation of riba. clarity.zepp.com Customer Support Review

• Facilitating Riba: By making credit card use more attractive for installment payments, Splitit indirectly facilitates the use of an interest-based financial instrument.
• The Nature of Credit Cards: A credit card loan is a Qard (loan) that generates Riba if not paid in full. Splitit does not change this fundamental nature.
• Shifting Responsibility: The burden of avoiding riba is entirely shifted to the consumer’s ability to manage their credit card diligently and pay off the full balance every month. If they fail, they fall into riba.
• Alternative Preference: From an Islamic perspective, direct payment methods (cash, debit) or genuinely interest-free installment models (like ethical layaway or Murabaha contracts) are always preferred.