Installment Payment System with Securitization Risk Management
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Solution Overview
Problem
Revolving credit card systems in the US have high Annual Percent Rates due to the risk of consumers defaulting on payments, leading to significant financial exposure for lenders, and existing financing mechanisms do not effectively manage cash flow for consumers who wish to spread costs over time without incurring high interest rates.
Innovation Solution
A system and method that allows consumers to split transaction costs into pre-defined installments, with the option to involve a secondary credit provider to fund the merchant, utilizing securitization and re-securitization cycles to manage payments and minimize risk, enabling consumers to spread costs over time while reducing the risk for lenders.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Ease of operation
If revolving credit card systems are used to provide general purpose loans, then consumers can access funds immediately for any purpose, but the Annual Percent Rate becomes excessively high due to default risk
Solution Approach 1:
The patent segments the credit transaction into multiple installments with predetermined payment schedules. Instead of providing full credit access upfront with high revolving rates, the system divides the transaction into manageable portions paid over time, reducing the risk exposure and financing cost for each segment.
Solution Approach 2:
The system performs preliminary actions by pre-approving specific purchase amounts before the transaction occurs. The merchant and consumer agree on installment terms in advance, and the system pre-authores the credit authorization, eliminating the need for high-rate revolving credit while maintaining immediate purchase capability.
2Adaptability or versatility
If consumers use revolving credit to spread costs over time, then they can manage cash flow, but lenders face significant financial exposure from potential defaults
Solution Approach 1:
The patent introduces an intermediary system that acts as a mediator between the consumer and lender. This system uses credit authorization tokens and predetermined installment agreements to facilitate payments, reducing the direct risk exposure for lenders while maintaining cash flow management flexibility for consumers.
Solution Approach 2:
The system implements feedback mechanisms through automated payment reminders, transaction monitoring, and dynamic credit line adjustments. The intermediary system tracks payment behavior and provides real-time feedback to both consumers and lenders, improving payment reliability through continuous monitoring and intervention.
3Loss of energy
If specific purchase loans are provided by merchants or financial institutions, then financing fees are lower than revolving credit, but the loan is restricted to a specific product or service
Solution Approach 1:
The patent creates a universal installment payment system that can be applied to multiple different merchants and purchase types. The credit authorization token and predetermined installment framework provide multi-functionality, allowing consumers to use the same low-fee installment mechanism across various merchants while maintaining purchase flexibility.
Data Source
AI summary
Disclosed is a system and method for Facilitating Credit Transactions, which may allow for the division of a given purchase or cash-withdrawal transaction amount, into periodical installments by enabling the financing of said transaction.