Point-of-sale financing isn’t new, but now it’s gaining more traction in the retail space, energized by a combination of technological advancements and consumer demand for installment-purchase alternatives as the coronavirus pandemic weighs on household access to liquidity.
POS installment financing has long been a normal part of buying real estate and automobiles. Which makes sense, right? These are big-ticket items that call for more cash to settle than most people have on hand. Further, it used to be common for shops to offer installment-purchase plans for items outside their customer’s weekly or monthly budgets, but those in-store options receded in the 1970s with the rise of consumer credit cards.
“In recent years, POS financing has re-emerged as a common feature of consumer commerce, supplanting credit cards, personal loans, and home-equity lines of credit,” says Dmitry Voronenko, CEO and co-founder of an industry-leading lending automation software maker, TurnKey Lender. “Instead of paying for online purchases outright using a credit card, Venmo, or another e-payments provider, e-commerce-financing giants such as Amazon and Walmart provide POS installment plans, even for items, like vacuum cleaners and earbuds, with relatively modest price tags.
But it’s not to say that small to medium product and services providers can’t compete. To level the playing field for any business that wants to offer automatic installment plans in-house, we’ve launched TurnKey Lender Retail, a flexible end-to-end solution for intelligent lending automation with the intuitiveness of a modern SaaS.”
Deciding to join the growing ranks of retailers that offer POS loans in one decision. The next one is how.
Saying yes to spacing out payments, no to credit cards
In the US alone, POS financing already tops $100 billion a year, according to McKinsey. That’s a jump from $49 billion in 2015 to a projected $162 billion for 2021, says the consulting firm, which sees a three-year compound annual growth rate of 20% for POS lending through next year.
Meanwhile, brick-and-mortar retailers — from department stores and home-improvement outlets to mattress sellers and exercise-equipment and skateboard makers — are making in-person POS financing available at a time when many consumers are feeling the pinch from the economic impacts of a worldwide public health crisis. This pace could accelerate as a global resurgence in Covid-19 cases starts to entail new restrictions on economic activity.
Among non-Covid contributors to the rise of POS lending are four main factors.
- Popularity: Consumers and retailers are more aware of POS funding options, especially in online settings, though with increasing awareness as an in-store option
- Ease: The loan application takes place before the sale is finalized, either in the register, via a mobile device, or in making online purchases.
- Speed: Lending-tech makers have improved POS systems with artificial intelligence, dynamic valuation models and automated administrative functions.
- Dislike of credit cards: Younger consumers, many of whom are struggling to repay their student loans, view credit cards with more suspicion and hostility than their elders.
For these reasons, McKinsey holds that POS financing was well on its way to broad consumer acceptance before Covid-19 struck.
Playing wingman to the middleman
Merchants thinking of providing in-person or online credit options should look for a POS system with, at a minimum, the following features.
- A turnkey back office for your employees
- Virtually instant credit decisions powered by artificial intelligence
- A user-friendly digital borrower portal
- Advanced analytics
- Support for any borrower or credit-product type
- Customizable application forms suited to your business and your customers
- An open programming interface for seamlessly integrating third-party add-ins
- Lead-generation capabilities, especially for up- and cross-selling initiatives and monitoring
- Ability to test workflows with internals tools and integrated analytics
But then a question arises. How is a retail enterprise — whether its a hardware store or a plastic-surgery practice — supposed to accomplish all this, and at scale?
One way to achieve this and avoid having to build a bank-like loan department is to outsource the whole shebang to a third party, a middleman, so to speak. Here though, the outsourcer will expect a significant cut of all lending fees paid. This means — post purchase — the relationship will be between the outsourcer and the borrower. As the retailer, you’re effectively on the outside looking in on relationships centered on credit that you made available in the first place.
But outsourcing still makes sense if you’re keen to get the whole purchase amount quickly — and more, if you’re running a “no frills” approach providing credit.
Unfortunately, this leaves the retailer with little scope for alternative credit scoring and makes it much harder to offer rewards and incentives to your customers. Outsourcing also lets retailers stay clear of the intricacies of underwriting.
Download the white paper we wrote for retailers getting ready to embark on a digital lending journey – learn to harness in-house financing and make money crediting:
Keep your customer relationships with a smarter DIY approach
An alternative to becoming a bank or bringing in an outside lender is doing it yourself — without really doing it yourself. Enter the “software as a service,” or SaaS, business model. In this approach, a fintech like TurnKey Lender provides the end-to-end lending technology along with pre-rollout training, and ongoing 24/7 support.
The SaaS model may also provide:
- Improved portfolio yield from technology that lets retailers optimize portfolio yield by working only with the most profitable customers along with predictive models to pinpoint optimal rates and terms.
- Increased operational efficiency that’s supported by artificial intelligence for fast and smart decisions.
- Mobile-lending capabilities via secure web app for on-the-spot customer service whether you’re at a cash register or at the far end of a vast showroom.
- Affordability due to its modular structure. With TurnKey Lender, you can start small and add functionality as needed.
- Scalability that lets your POS-financing program grow along with your business.
“Another reason many retailers prefer fintech providers like us over outsourcers is flexibility,” says TurnKey Lender’s Voronenko. “Sign up with an outsourcer and in most cases, they make the rules around loan durations, financing types — loans, leases, or lines of credit — and interest rates.”
This, adds Voronenko, “makes it harder for retailers to tie purchasing incentives such as lower rates, grace periods, and promotions to their financing programs.”
In sum, retailers looking to make POS lending part of their operations need first to decide whether outsourcing or an Saas approach makes the most sense for them going forward.
Schedule a TurnKey Lender Retail demo today and provide your consumers with simple point-of-sale financing that helps grow your business.