A shopper splitting a purchase into instalments at no charge is not receiving free credit. The cost is paid by the merchant, and the model depends on what that spending buys.
The merchant pays a fee per transaction
Providers charge retailers a percentage of each transaction, typically higher than card interchange, in exchange for offering the instalment option at checkout.
The provider pays the merchant the full amount immediately, less the fee, and takes on the obligation of collecting from the customer over the instalment period.
The merchant therefore receives its money upfront and transfers the credit risk, which is the service the fee is paying for.
Merchants accept the cost for conversion
Removing the requirement to pay in full reduces abandoned checkouts, particularly for larger purchases where the total is the point of hesitation.
Order values also tend to rise, since a purchase framed as a series of smaller payments feels smaller than the same amount paid at once.
Whether the additional revenue exceeds the fee is the question every retailer using these services is implicitly answering.
The calculation is easier to justify on high-margin goods, which is why the option appears most often in fashion, furniture and electronics rather than in low-margin essentials.
Late fees and longer plans supply further revenue
Short interest-free plans commonly carry charges for missed instalments, which produce revenue from a minority of users while the headline remains free.
Longer-duration plans, often for larger purchases, generally do charge interest and function as conventional point-of-sale lending.
The mix between these products matters, because the economics of a fee-funded short plan differ substantially from an interest-bearing one.
Funding costs sit against the whole model
The provider is lending its own or borrowed money between paying the merchant and collecting the final instalment, and that funding carries a cost.
When interest rates rise, the margin on a fixed merchant fee narrows, since the cost of carrying receivables increases while the fee does not.
This is why the sector's profitability is sensitive to rates in a way that is invisible to the shopper at checkout.
Data and repeat use are part of the value
Providers observe what customers buy, where and how reliably they repay, which supports both underwriting and the marketing of further offers.
Many operate their own shopping apps, directing customers to partner merchants and earning referral revenue on top of transaction fees.
The instalment product functions partly as an acquisition channel for that wider relationship, which is why it can be offered at no direct cost to the user.