PINTEC Academy: How to Design Installment Payment Services for Online Education Platforms

Author: Sherry Zhang | 2019-03-07

As the spring semester begins, there comes a new peak time for online education course registration. Nowadays, the cost of online courses is on the rise. Course fees - which sometimes amount to as much as 10,000 RMB (approximately USD1500) can pose liquidity challenges to some families.

How can online education platforms attract and retain more users? How to promote the sales of pricey courses? Providing online installment services is one solution.

In this article, PINTEC Academy will share thoughts and experiences on how to design installment payment options for online education platforms.

1. The ultimate goal: boost turnover

In the Chinese online education market, the turnover realized through installment services accounts for 10% to 60% of the total revenue. It is clear that installment payment options are in high demand among customers.

The reason for online education platforms to introduce installment services is two-fold: Business development - there are circumstances where customers are willing to pay for courses yet do not have the necessary funds immediately available. Installment payment options can help facilitate payment so that the platform doesn’t lose a student.
Peer competition - as competition among online education platforms becomes increasingly fierce, it is a way to increase competitiveness by providing customers with another payment option.

2. Two implementation methods

Online education platforms, by nature, specialize in providing courses and tutorial services, while the installment service is essentially a financial service. Therefore, when in need of launching installment services, most online education platforms will opt to design installment products with an external installment service provider, or a vendor. The job of the vendor is to assess credit risks and recommend credit decisions.

There are two kinds of cooperation available in the market:

In the first method (Mode I), the online education platform launches its installment products. After applying for installment payment on the platform, customers would make subsequent repayments directly to the platform.

In this case, the vendor plays the role of a pure technical provider to offer suggestions to credit decision makers. So the repayment relationship is between the platform and the customer, with the online education platform as the ultimate risk bearer.

However, it’s widely believed that the risk is relatively controllable in this mode because the “customers’ repayment behavior” and the “platform’s course-offering behavior” are usually carried out concurrently, meaning that if the customer stops the repayment, the platform will stop providing the course, such that the customer’s learning purpose would not be satisfied.

Compared with Mode II, which will be detailed later, another advantage of Mode I lies in that it is more likely for the online education platform to get lower-cost funds and own more say in fee pricing.

In the second method (Mode II), the installment service is primarily completed by a vendor. The platform guides the customers with installment payment needs to the vendor and the subsequent repayments are happening between them and the vendor.

In this mode, the vendor (or a third-party financial institution) pays the tuition fee to the platform first, and then it provides installment services to the customers. In this case, online education platforms can run on a "light" mode, by focusing on providing educational services, without need to worry about managing installment payments.

3. How is the money paid?

In this section, we will take “Mode II” as an example to explain how the interest fees are paid in the installment business.

Below is a snapshot from a well-known online education platform in China. It shows the installment service items provided to customers.

As seen in the picture, under this installment service order, customers do not need to pay any fees to the vendors. Therefore, for the customer, it is more like “holding and using” the funds without paying any interests for a certain period. Many customers are happy to pay for their courses with this option. The interest charges generated are subsidized by the education platform to the vendors.

On industry-level, the interest fees are usually covered by one of the three ways: 1) by the platform; 2) by the students; 3) by both parties. At present, the common practice in the market is the first one, as shown in the above picture.

In the “customers - platform - vendor” tripartite relationship, customers usually do not pay interest. As for how to settle the fees between the platform and the vendor, the commercial terms vary, and it will not be detailed here.

It is worth mentioning that, even if the interest needs to be paid by the customers, it may not be challenging to promote the installment payment option.

4. Choosing Vendors

For online education platforms, choosing a reliable installment service provider is of vital importance for the business to run.

From PINTEC’s experiences of communicating with online education platforms, the provider’s past service experience in this industry is of great importance. Vendors with rich experience are more familiar with the characteristics of the customer base, thus making better suggestions regarding credit decisions.

Most online education platforms consider using multiple installment service vendors, for two reasons: Risk diversification - Using various vendors can avoid the disaster when one vendor is out of service, and the whole installment service would not work. Business volume - The amount of funds available to each vendor is limited. Therefore, by partnering with several vendors, a platform will be more able to provide installment services to more customers.

Yue Yijie, head of the consumer installment business of PINTEC, said that PINTEC often receives compliments from clients such as, PINTEC is “able to efficiently bring various financial institutions into the commercial scene”.

5. Conclusion

In traditional Chinese family concepts, children’s education is a top priority. Parents often have low price sensitivity when choosing lessons for their children. For work professionals, most of their online learning is to invest in themselves and make themselves more competitive in the job market. The most significant cost of their online study is not so much the cost of the course as the time they spend studying. So they also have a relatively high budget for the online courses.

This may also be the reason why online education has become a rare sector which venture capitals chase for even in 2018 capital winter.

iiMedia Research predicts that China’s online education market will reach CNY 433 billion in 2020, with 296 million users.