As a business owner, you want to convert and retain as many clients as possible. And some of them won’t be able to purchase your product in one payment. To build meaningful relations with the client and keep the economy working, consumer financing options are now more critical (and intuitive) than ever.
In the increasingly digital economy, businesses can’t turn down viable monetization methods. There are two ways to start offering consumer financing. You can go to a lender and outsource crediting to them, or you run crediting as a part of your business model where you act as a lender to your client.
Before we proceed, wanted to check if you (or your staff) would like this white paper with all you need to know to become a consumer lender.
What is Consumer Financing?
Right now, also known as BNPL (buy now pay later), embedded lending, and in-house financing. Essentially, consumer financing is a sales tool that allows your clients to pay for your goods or services in installments rather than in one go. The easier to use and the fairer your consumer financing program is, the more potential sales you can convert into repeat paying customers. And if you treat them well while they pay out what they owe you, chances are they are going to think of you next time they need something. And this doesn’t just apply to electronics stores. Medical clinics, retailers, auto dealers, service providers – pretty much anyone can offer some kind of a credit line to their consumers. Not only because it builds trust, but because with the right technology, you can grow your profits while building it.
What consumer financing means to a business owner is that you collect loan applications, process them to understand the risks, come up with the optimal conditions, offer a payment plan to buy your goods or services, and then automatically collect the money, with interest on the financing you provided. And while it may sound hard to implement, every step of the lending process can now be automated.
“We know how to make lending cloud-based and accessible to businesses and borrowers anywhere. We’ve been doing it for years. TurnKey Lender is pioneering the development of intelligent lending technology that enables fully contactless crediting for any type of business. Our solution can be launched within a day and from there, our intuitive SaaS solution powered by AI takes care of financing your customers or providing other credit products. This and the expert integration and configuration services are just some of the things TurnKey Lender has to offer.” – comments Dmitry Voronenko, CEO and Co-Founder of TurnKey Lender.
How Consumer Financing Works
Usually, consumer financing is a credit that gets paid out in a matter of months in equal installments. You charge the down payment and collect the payments with interest every month. The reason why for decades most businesses outsourced financing to banks, credit unions, or alternative lenders was that evaluating credit risks accurately used to require analytical capabilities of an underwriting department.
Nonetheless running your own financing program becomes more and more popular with automation taking care of risk evaluation, credit decisioning, origination, servicing, collection, and reporting. That said, there are two fundamental approaches to consumer financing – in-house financing or involving a middleman in the form of a third-party that will finance the clients for you.
The same way launching an e-commerce store became available to anyone, bank-grade lending automation isn’t only accessible to large-scale traditional financial institutions anymore, with advanced SaaS providers, like TurnKey Lender, offering intelligent end-to-end automation of lending to businesses in all verticals. Ready-made solutions which are as easy to deploy and operate and don’t put a strain on the operational cost thanks to advanced AI doing all the heavy lifting behind the scenes.
Consumer financing: in-house vs third-party options
Outsourcing financing to traditional and alternative lenders has been the only viable way to offer financing at scale and not dedicate an entire department to managing loans. Using a third-party means involving a middleman that, at best, keeps just a part of the interest. In that scenario the client doesn’t have a relationship with you past the sale, it’s with the bank.
And for some businesses that’s the right way, because administering the loans yourself means that you remain in control of the entire operation and take on all of the risks yourself. After all, that’s the reason why up until recently only a large financial institution would be able to run all the checks and accurately evaluate the credit risks of each application.
It’s evident though, that in the digital age, crediting is becoming embedded into the operations of any business rather than a service from a third-party. As lending technology becomes developed enough to provide the market with intelligent easy-to-use SaaS solutions, business owners can finance their clients directly, originating the loans, servicing, and collecting payments on autopilot. While involving a third-party lender in this process may result in delays, loss of data, and reduced repeat sales.
Implementing a digital consumer financing program allows you to:
- Reach wider audiences thanks to the financing program making your product more affordable.
- Add a new selling point for your products for marketing purposes
- Move your business operations online, collecting all the data in one place and allowing for advanced analytics.
- Eliminate the middlemen in the form of a bank.
- Build lasting relationships with returning customers who you can target with special offers, upsell, and cross-sell opportunities.
- Increase profits by making it easier to buy more expensive things.
- Regular payments you’ll receive from borrowers will build a stable income source that combats income seasonality
Technology Choice to Do In-House Consumer Financing Right
Launching a customer financing program shouldn’t be a massive technological undertaking anymore. And the process for the client should be painless, so they want to come back.
Enrolling for a payment plan, getting approved, and receiving your purchase should all be done from an intuitive interface of a modern SaaS, not in Excel tables or on paper. The reliability, usability, and intelligence of your operation all depend on the system you end up using to automate lending. Look for a solution with:
- Built-in decision engine – the platform needs to have a flexible decisioning flow that can be adjusted to your business logic and to filter out potential defaulters early on.
- Scalable infrastructure to process as many loan applications as needed without skipping a bit.
- Affordable pricing – TurnKey Lender offers lending as a service platform where you pay a subscription fee based on the number of loans you successfully process.
- Simple learning curve – both borrowers and employees are used to Amazon-level customer experience, modern lending platforms are built in accordance with the latest design best practices.
- Integrated solution – to streamline the business operation, a single platform should be the central hub of all intel and analysis. Get a platform that combines multiple functions and allows for simple API integrations with different data sources, tools, services.
- Available from the cloud – look for a platform that you can deploy on the cloud to be accessible to your staff and clients from anywhere and on any device.
- End-to-end lending automation – find a solution that allows for automation of the specific parts of the lending process as well as its entirety.
- Proven track record – make sure that the provider has proven previous experience with similar projects and recognition from the industry.
- Regulator-ready software – make sure to talk to a local regulations expert to see how selling your products in installments is regulated where you operate. For example, in the US, there’s no need for FCA approval if you operate a business-to-business service and you offer financing services only to other incorporated businesses (not sole traders or small partnerships). Once you know the rules, make sure the system can suit that.
In-house financing powered by TurnKey Lender
TurnKey Lender platform makes it possible for any business to benefit from implementing a consumer financing program. From simple payment installments and merchant or vendor financing, to invoice financing or factoring – TurnKey Lender automates it all from a unified lending management solution tailored to the specific needs of your industry and market.
We offer end-to-end lending processes automation that:
- Comes with an AI-driven Decision Engine built-in. It includes proprietary scoring models and preconfigured integrations with major credit bureaus and bank statement providers. All this data processed by the machine learning algorithm allows for unmatched credit decisioning accuracy.
- Highly configurable credit products. Granular credit product settings allow you to create as many credit products as you need to serve every client’s specific needs as well as to create promo campaigns and run special offers. No matter the custom settings, the processing, underwriting, servicing, collection, and reporting will still be smoothly automated.
- Different versions of the solution by business domains (retail, auto, medical) allow you to find the optimal fit for your operation. And if you need custom functionality or advanced adjustments, our team is there to tune the platform to your exact specifications.
- End-to-end lending processes automation. TurnKey Lender platform helps you automate every element of your financing program from a single solution.
- Other than the 75+ pre-configured integrations, TurnKey Lender comes with an advanced API client that allows you to integrate with any third-party products or services in a matter of clicks.
- Intuitive workplaces for the employees and a Borrower portal. Every user of your TurnKey Lender platform will have a dedicated workplace with only the features they need available to them. And the borrowers will be able to track, repay, and apply for new loans in the Borrower portal.
- The AI-driven platform takes hours to deploy and has a little-to-no learning curve.
Consumer Financing Process with TurnKey Lender
With TurnKey Lender, you can put customer financing on cruise control and focus on using it as a sales tool for business development. The entire consumer financing process can be as simple as that:
- Communicate the details of your consumer financing program to your clients
- Convert leads through the configurable built-in application form
- Make a credit decision based on the intel the platform gathered.
- Collect a down payment and approve the loan
- Receive payments automatically with the periodicity you agreed upon with the client.
All the data is then stored in the platform and can be exported for reporting or analyzed internally with built-in tools.