Instalment plans offered at checkout usually advertise no interest to the shopper, which raises an obvious question about where the revenue comes from. Most of it is paid by the merchant.
The merchant discount is the main line
A retailer offering the option pays the provider a share of each sale, and that share is typically larger than a card transaction would cost.
Retailers accept it because the option tends to raise conversion and basket size. A shopper hesitating over a single large figure often proceeds when it is split.
The provider is effectively selling a checkout conversion service, and the fee is priced against the additional sales it produces rather than against processing cost.
The provider is lending its own money
When the plan is agreed, the provider pays the merchant almost in full immediately and then collects from the shopper over the following weeks.
That money has to be funded, either from the provider's own capital or from borrowing, and the cost of that funding rises when interest rates rise.
Because the repayment period is short, the balance recycles quickly, so a relatively modest funding pool can support a very large volume of transactions.
Late fees and defaults sit on the other side
A missed instalment usually triggers a fee, and fee income is meaningful for providers even though it is not the primary design of the product.
Defaults are the main cost. Approval decisions are made in seconds with limited information, which makes the credit assessment weaker than a conventional loan application.
Providers manage this by starting new customers with small limits and expanding them only after a repayment record exists.
Why the model attracted regulatory attention
Because the products were often structured to fall outside conventional consumer credit rules, obligations around affordability checks and disclosure did not always apply in the same way.
Reporting was also inconsistent, so a shopper could hold several plans across different providers without any of them seeing the full picture.
Rules in many jurisdictions have moved toward treating these plans as credit, which changes both the disclosure required and the data shared.
What it means for the shopper
The plan is credit even where no interest is charged, and missed payments can carry consequences beyond the fee itself.
Costs are also embedded in prices. When merchants pay a larger fee, that expense forms part of the pricing that every customer faces.
Treating the arrangement as borrowing rather than as a payment method gives a more accurate picture of what has been committed.