Author's blurb: Lending money to my colleagues is very common for me. After lunch, I'd pay the bill first and trust that they'll pay me back at some point. I tend to take my payments back in so-called "prepaid meals," which basically only cover my bill the next time we eat out together.
It all started when Dylan Tan foolishly offered (his words) his personal credit card details on Twitter.
At that time, Malaysians living overseas rushed home for the May 2018 general election.
Flights were expensive and many struggled to afford them.
"I literally told them to buy their own flight with my credit card and they could pay me back over 3 months," he said.
And you know what? Everyone actually paid it back.
That was all of the market validation it took Dylan and his business partner Vish to start Pay With Split (Split).
Buy first, pay later
Split started out as a fintech platform that allowed users to pre-book their flights and pay back in installments.
"By December 2019, numerous online travel aggregators were offering their customers Split as a payment method," said Dylan.
They even had global investors who gave them money to scale the company.
But then their rapid growth was stopped by the pandemic when travel was essentially banned worldwide.
Split's sales continued to decline.
"Vish and I looked at each other and said 'we sucked' because travel had dried up and Malaysians were now spending on things they could buy online to use at home," he said.
With no other choice, in a week they hacked a version of Split that could work on most ecommerce websites.
Screenshot of the website when you first log in / Photo credits: Share
However, they had to partner with a Malaysian business willing to use Split for their clients.
Dylan reached out to a childhood friend in Penang who owns a fitness apparel brand and persuaded him to try Split.
Although he was initially skeptical, he remains one of their merchants to this day.
The aim of this platform was to give online shops the opportunity to offer interest-free installment payments to customers without a credit card.
Split money by charging the store a success fee, which Dylan says is typically less than 10% based on the partner stores' monthly sales.
Dictionary time: A success fee is a compensation structure paid to an investment bank for the successful completion of a transaction.
This is how split works
- Customers can pay with split at the checkout.
- Split pays the business the full amount.
- The customer pays back split in up to 3 monthly installments with a debit or credit card from a bank.
Split's installments are automatically deducted every month like Spotify or Netflix subscriptions.
Users will also receive email and phone reminders to ensure that the selected payment method has sufficient funds before the installment's due date.
Partner businesses receive full advance payments from Split.
What the Split option looks like on a dealer's website / Photo credit: Split
This means that Split takes the risk of collecting the installments and pays the costs if users are unable to repay the costs.
"I remember once we had a user who was struggling to pay his installments because his wife was suddenly diagnosed with cancer," said Dylan.
The customer said he had started a second job as a COVID-19 swab to help with medical bills.
After Dylan reviewed his claim and verified that his documents were in order, he restructured the client's installments into smaller payments over an extended period of time at no additional cost.
However, in cases of individuals who abuse the service or act in bad faith, Split has the right to legally escalate the problem.
No paperwork required
Dylan set up a transection for me to test for myself
"We don't make money when consumers miss out on payments, so it is in our best interests (pun intended) to encourage responsible spending," he said.
He added that not everyone who applies to use the service will be approved.
Banks usually require a lot of paperwork when a person applies for a loan.
However, Split has software that can predict the likelihood of someone paying it back on time.
This is based on repayment data they have collected from their partner merchants, their own platform and third parties.
The variables are based on, for example, what consumers buy, where they buy, their location, their split behavior, previous purchases, age, and payment methods.
He also announced that this information is collected in the background and not filled in by the customers themselves.
This sounds pretty invasive to me as it requires a high level of trust in a website to be able to analyze all of this personal data.
However, Dylan stated that anyone who wants to pay with Split must agree to give them their details before payments are processed.
"We make it clear in our payment process what personal information we are going to ask for, and behind the scenes we only measure non-personally identifiable information," he said.
Dictionary time: Non-personal data (non-personal data) is data with which a person cannot be identified, either directly or indirectly. This is the opposite of personal data and personal data (PII).
Dylan shared that at the beginning of Split, the team were literally handing out installment payment plans to anyone they wanted.
Counterintuitively, some people didn't have to pay them back in order for the software to learn to model future users against them as the business scaled.
"I like to joke that when we started out like Oprah at a Christmas special, we were giving out installment plans to everyone," he added.
It will go beyond ecommerce sites
According to Dylan, the “buy now, pay later” model is already well established in the US, Europe and Australia, but quite new in Malaysia and across Southeast Asia.
We have a few other fintech companies on site who buy now and pay later. One of them is Paylater Malaysia, where installment payments are made through access to their app.
Split differs in that it is channel independent, which means that its payment method works across ecommerce platforms.
“The platform also works on social media, chat apps, live streams and emails, which is where many Malaysians do their business. After all, we don't charge any late fees, ”he said.
Since April 2020, the location has achieved sales of more than RM 6 million with 150 brands with which it works.
The team expects greater growth over the next few months as Malaysians continue to be encouraged to stay at home and do most of their shopping online.
Bottom line: To me, this model sounds too good to be true, but it's obvious that there is no malicious intent behind the website. Given the brand is ready to hear the concerns of customers struggling financially, it would be interesting to see how they handle that care and empathy with more customers as they scale.
- You can find more information about Split here.
- You can read about other Malaysian startups here.
Selected image source: Dylan Tan, co-founder of Split