Consumer Driven Lending at the Speed of Life
Have you ever thought about buying furniture, appliances, airline tickets, or healthcare services using an instantly approved lease or loan? For individuals who do not have the cash or liquid assets to make a significant purchase outright, or who do not feel comfortable putting a large purchase on an existing line of credit, Point of Purchase/Point of Sale (POP/POS) financing can be an attractive alternative.
A recent article in American Banker, written by Penny Crosman, highlights the disruptive impact of Fintech companies offering consumers instant financing at the point of sale. This significant market opportunity (estimated market size ranges from $5 billion[1] to $391 billion[2]) is open to vendors, retailers and merchants who take the proactive steps to implement POP/POS financing options.
Business Benefits for POP/POS Financing
According to research from Omni Capital Retail Finance, retailers can increase sales by up to 20% and increase average order value (AOV) by up to 30% when offering POP/POS financing.[3] Consumers are solidly in favor of instant financing – a recent study by Researchscape on behalf of Klarna (a provider of e-commerce POS financing) found that “75% of consumers indicate they would be likely to select an online retailer that offered instant financing compared to another that did not.”[4]
POP/POS financing can also appeal to the 30% of Americans (and 60% of Millennials) who do not currently have a credit card.[5] While these consumers have a need for credit, they are not opting to acquire traditional credit cards for a “variety of reasons – fear of debt, lack of access to credit on good terms, and the simplicity of debit cards.”[6]
The large potential market, combined with consumers who are actively looking for these instant financing options, represents a ripe opportunity for the financial institution (FI) ready to make a move.
Potential Markets
As noted above, e-commerce is a significant channel for POP/POS financing. Established vendors in this space include Klarna, Bread, and Affirm. These companies are focused on making it as easy as possible for consumers to get the financing they need to make online purchases, without disrupting the online shopping experience. The application and approval experience is seamlessly integrated into the checkout process, enabling customers to apply for credit on the same screen they are using to research products and checkout.
Other markets for POP/POS financing are emerging as well, with specialty financing companies that serve niche markets. Examples include Mosaic, which provides financing options for consumers looking to invest in solar energy, and LightStream, which provides home remodel financing and more.
From healthcare and auto services to travel and even pets, instant POP/POS financing shows no signs of slowing. But how are lenders building a successful model, and what can they do to improve?
Saying Yes When Customers Ask
How are these POP/POS financing companies bringing on new customers while managing risk?
Current structures vary from company to company, but many of the standard credit models apply. Consumers may be asked for personally identifiable information, which is then checked against traditional bureau scores. Variable loan terms and conditions are available based on the consumer’s bureau file, and the applicants can accept online.
When a consumer falls outside super-prime or prime categories, however, POP/POS financiers have to take a nuanced look at the products they’re offering. They may choose to present different loan terms, or perhaps look at alternative credit models or alternative data to make a more informed decision about what products make sense for those customers.
Access to that data, in real-time and in a seamless, frictionless manner, is one of the primary ways POP/POS financiers can continue to drive the disruption they are creating today. By providing an instant decision based on the most relevant and timely data available, organizations may see a competitive advantage over less nimble FIs that require additional time to access and process consumer data.
Partnering with the right data providers can make a significant difference for POP/POS companies. Whether through native integrations with alternative data providers, or through flexible API partnerships like the one Zoot provides, the real-time flow of information is an imperative for today’s impatient and demanding consumer.
Delivering On Evolving Customer Expectations
POP/POS financing is a growing market because it is meeting, and often exceeding, consumer expectations. With a very small amount of information, customers are able to apply for a receive financing to make a significant purchase.
There are no lengthy forms to complete, no waiting for hours or days, no need to leave the shopping site to access this credit. By catering to the growing demand for frictionless, real-time credit time offers, fintech innovators are enabling consumers to make the purchases they want while delivering new and more valuable business to merchants.
Key to this model is data – the right data, delivered at the right time, within milliseconds. Customers who face delays are more likely to abandon their purchases and go elsewhere, making that instantaneous decision a key differentiator for successful POP/POS organizations.
[1] Apex Insight. (2017). UK Point of Sale Finance Market Profile and Forecast 2017 (Rep.).
[2] CUToday.info. (2015, May 21). A $391-Billion Loan Opportunity Going Untapped? CUs Could Be ‘Category Killers’ [Web blog post]. Retrieved July 12, 2017, from http://www.cutoday.info/THE-feature/A-391-Billion-Loan-Opportunity-Going-Untapped-CUs-Could-Be-Category-Killers
[3] Sanders, C. (2016, August). Focus on Retail Finance. NACFB Magazine, 53.
[4] Chien, M. (2017, May 12). Customers Want Options to Finance Their Online Purchases [Web blog post]. Klarna. Retrieved July 12, 2017, from https://knowledge.klarna.com/article/customers-want-options-finance-online-purchases/
[5] Frantzen, K., & Edgar-Smith, L. (2016). Merchant Lending: A Fresh Perspective on Growing Your Account Holder Base (p. 4, Rep.). Temenos.
[6] Davidov, A. (2016, July 7). Innovation in Point-of-Sale Finance [Web blog post]. Medium. Retrieved July 12, 2017, from https://medium.com/@alexdavidov/innovation-in-point-of-sale-finance-f915cc8a7ccd
