A new Forbes article by Elena Ionenko, Head of Business Development at TurnKey Lender:
Point-of-sale (POS) financing was at the forefront of a retail revolution well before the novel coronavirus swooped down to disrupt business plans and household budgets around the world earlier this year. Now, with the additional spur of the pandemic, retailers are increasingly eager to reduce sales friction and attract customers by providing installment plans to fund purchases.
Businesses considering this model — in part, a digitized throwback to purchasing habits in vogue before credit cards became big in the 1970s — should first consider how best to provide credit at cash registers, real and virtual.
In the U.S., POS financing — which helps buyers finance specific purchases or spend up to pre-defined amounts with a specific retailer, typically repayable in installments — already surpasses $100 billion a year. It’s fueled by five principal factors:
- Convenience: Credit application occurs before the actual sale, either at the register, via a mobile device or as a prelude to self-directed online purchases.
- Fintech innovation: Lending-tech makers have improved credit origination and processing with artificial intelligence and dynamic scoring models, in addition to automated administrative functionality.
- Broadening acceptance: Consumers and retailers are more aware of POS financing options, especially for large- and medium-ticket items.
- Disenchantment with credit cards: Younger consumers, many of them struggling to pay down student loans, view credit cards with more suspicion and hostility than their elders.
- Covid-19: Broad-based shutdowns have slowed global business activity, inspiring some retailers to offer customers more purchasing options.
Though goaded now by an acute public health crisis, POS lending was on its way to mainstream acceptance among consumers and merchants alike. This trend is exemplified by Walmart’s engagement, starting last year, with installment financier Affirm.
Third-party providers for a hands-off approach to POS financing
U.S. retail purchases under POS arrangements grew in value from $49 billion in 2015 to $94 billion in 2018, representing a compound annual growth rate of 24%, according to McKinsey & Company. In its two-year-old take on the POS-financing market, the consultancy predicted that U.S. POS lending would account for $162 billion by 2022, a further CAGR of about 20%. Globally, this market may already have topped $400 billion in the run-up to the pandemic, according to other industry sources.
Retailers keen to offer installment financing to their customers at the point of purchase must make an important decision around implementation. Should they work with a third-party lender or engage a white-label in-house option provided by a lending-technology specialist? The answer can, and should, differ from retailer to retailer in accordance with a careful assessment of business needs and priorities.
Among the advantages of working with a third-party lender are:
- No waiting for the cash equivalent of the purchase amount. The loan settlement is between the consumer and the third party, with the retailer now largely out of the loop and entirely off the hook.
- The ability to remain blissfully ignorant of credit underwriting.
- The absence of credit risk.
Read the full article on Forbes:
Options For Retailers Considering Point-Of-Sale Financing To Win And Keep Customers