Automated Installment Payment Decision Engine

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Solution Overview

Problem

Existing installment payment systems in e-commerce environments face challenges in reducing chargebacks and fraud, with merchants assuming financial risk and lacking automation to offer installment plans in a flexible and convenient manner.

Innovation Solution

An automated system that uses machine learning to determine whether to offer installment payment options based on product-specific, merchant-specific, and customer-specific variables, configuring the checkout interface accordingly to reduce chargebacks and enhance convenience.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Productivity

If installment plans are offered to all customers based on credit information and rating, then sales conversion increases, but financial risk and chargebacks increase

Engineering Contradiction:

Improvesales conversionVSAvoidfinancial risk

Core Design Contradiction:

ProductivityVSReliability

Solution Approach 1:

The system applies different installment plan offerings to different products within the same merchant catalog. Product-specific variables are determined based on characteristics like price, category, and historical performance, allowing high-risk products to be excluded from installment plans while maintaining them for low-risk products. This resolves the contradiction by locally adapting the installment plan availability rather than applying a universal rule.

Inventive Principle:

Principle #3Local quality

Solution Approach 2:

The system dynamically determines installment plan eligibility at the time of purchase based on real-time evaluation of product-specific, merchant-specific, and customer-specific variables. This dynamic approach allows the system to adapt to changing conditions and make optimized decisions for each transaction, balancing sales conversion opportunities with financial risk management.

Inventive Principle:

Principle #15Dynamics

2Device complexity

If merchants assume full financial risk for installment payments, then underwriters have simplified risk management, but merchant profitability decreases

Engineering Contradiction:

Improverisk management complexityVSAvoidmerchant profitability

Core Design Contradiction:

Device complexityVSLoss of energy

Solution Approach 1:

The system segments the financial risk by using product-specific variables to identify high-risk products that should not be offered as installment plans. This segmentation prevents merchants from assuming risk on problematic products while maintaining installment plans on safe products, thereby protecting merchant profitability while keeping the underwriting process manageable.

Inventive Principle:

Principle #1Segmentation

Solution Approach 2:

The system performs preliminary risk assessment by determining product-specific variables before offering installment plans. This advance evaluation prevents merchants from entering into high-risk transactions, allowing them to avoid potential losses before they occur while still participating in low-risk installment opportunities.

Inventive Principle:

Principle #10Preliminary action

3Reliability

If manual underwriting processes are used for installment plans, then risk assessment is thorough, but processing time and operational complexity increase

Engineering Contradiction:

Improverisk assessment accuracyVSAvoidprocessing time

Core Design Contradiction:

ReliabilityVSLoss of time

Solution Approach 1:

The system implements automated determination of product-specific variables using machine learning models that independently evaluate product characteristics, merchant performance, and historical data. This self-service automation performs thorough risk assessment without requiring manual underwriting intervention for each transaction, significantly reducing processing time while maintaining assessment accuracy.

Inventive Principle:

Principle #25Self-service

Solution Approach 2:

The system replaces manual mechanical underwriting processes with automated machine learning-based variable determination. This substitution maintains thorough risk assessment capabilities through sophisticated algorithms while eliminating the time-consuming manual review process, enabling rapid decision-making at scale.

Inventive Principle:

Principle #28Mechanics substitution (Replace mechanical system)

4Ease of manufacture

If installment plans are offered uniformly across all products, then implementation is simple, but flexibility and precision in risk management decrease

Engineering Contradiction:

Improveimplementation simplicityVSAvoidrisk management flexibility

Core Design Contradiction:

Ease of manufactureVSAdaptability or versatility

Solution Approach 1:

The system creates a universal framework that automatically determines product-specific variables for any product in the merchant catalog. This multi-functional approach handles diverse product types, price ranges, and risk profiles through a single automated system, maintaining implementation simplicity while providing sophisticated risk management flexibility across the entire product portfolio.

Inventive Principle:

Principle #6Universality (Multi-functionality)

Data Source

PatentUS11386488B2System and method for combining product specific data with customer and merchant specific data

Publication Date: 2022.07.12 SHOPIFY INC

AI summary

Systems and methods are provided for automatically making a decision as to whether or not to over an installment payment (IP) option to a customer at checkout at an online retailer for goods or services. The IP decision is made, at least in part, based on the specific product or products being purchased. In some cases, it is also based on merchant-specific information and/or customer specific information.