How In-Store Retailers Can Leverage Point-Of-Sale Lending
How In-Store Retailers Can Leverage Point-Of-Sale Lending
By Arad Levertov
The ability for online retailers to provide point-of-sale lending — financing right before a customer pays for a purchase — has significantly benefited electronic retailers, helping them sell more goods and services. This is a relatively new phenomenon; until fairly recently, the ways consumers accessed retail credit had not changed significantly since the first plastic credit card was invented in 1959.
Virtual lending was enabled by the advent of smaller-dollar, shorter-term repayment plans offered via online shopping checkout pages. Boosted by convenience, choice and flexible payment terms, these technology-enabled point-of-sale lending products are now growing in popularity among online merchants and their customers.
And yet, if you were to go into a store to make a purchase, it would be obvious that most brick-and-mortar businesses haven’t adopted the same technology-enabled point-of-sale financing innovations. Even today, in-store financing options are usually limited to old-fashioned private label cards with high interest rates and lengthy loan applications, or payment in full. Why the disconnect?
Why aren’t brick-and-mortar businesses implementing the same lending products being used online? The answer lies in the fundamental differences between in-store and online purchases.
The Nature Of Online Versus In-Store
First, it makes sense to think about the different environments. Online, you have time. You can put something in your shopping cart and come back to it later that day, or even later that week, to complete the purchase. You can fill out lengthy credit applications at your own pace, or you can shop around for different payment options.
In-store, time is compressed. You often need to shop, make your purchase and get back to your life in short order. You’re limited by the amount of time you want to spend in the store and the amount of time you want to spend in a line, much less by the amount of time you want to spend filling out a credit application. A retailer needs to keep the checkout flow moving to ensure they can serve as many customers as they can, as efficiently as possible.
Online shopping is low stakes and often involves shopping for nice-to-have products, instead of essentials. It would be great to have that new Peloton bike — but going without won’t crush you, either. In-store, many purchases are necessities, such as new snow tires or care for your pet.
Online, if you click to make a purchase and apply for a financing and/or layaway option, there’s no one looking over your shoulder and observing whether you get approved. In-store, it might feel like everyone knows if you get rejected.
Online financing can’t simply be copied and pasted for the in-store environment, so what will work in-store? And since 90% of purchases happen in the physical world, what can retailers with services and products that necessitate in-person sales co-opt from online trends?
In-Store Point-Of-Sale Financing Best Practices
In my experience, consumers want flexible credit, offered at fair and reasonable rates, with a quick application process and transparent terms. Millennials, in particular, are wary of credit cards, which can burden them with long-term debt. And nowadays, people generally want it all at lightning speed.
So for brick-and-mortar retailers looking to implement a point-of-sale financing option, here are questions to consider:
• Who is covered? Be crystal clear with the provider on the range of terms and what type of consumer can be approved. You never want to resort to a tool that employs predatory lending terms, nor do you want to turn away people whose FICO scores usually preclude them from getting fair financing. You want to negotiate for both fair terms and comprehensive coverage. A point-of-sale option should work for everyone across the credit spectrum — not just for the upper third of people with great credit scores.
• How fast is it? When a consumer finances a car or a new living room, they might be willing to spend 30 minutes filling out paperwork. But for small-dollar financing, such as a set of tires or a pair of glasses, time is essential. Customers at the checkout counter likely don’t have time to search for an app, download it (sufficiently strong wireless or data connection permitting) and register as a user before trying their luck at getting approved for borrowing. The whole process, from product introduction to approval, needs to happen within a matter of seconds.
• Does the solution take advantage of the latest technologies? While much has been said about machine learning in underwriting and how accurate underwriting can lower costs for consumers, some lending companies are starting to use machine learning to eliminate operational inefficiencies — and are therefore driving down the cost of finance for customers while driving up repayment rates. Better rates and better repayment lead to better outcomes.
• Is the product scalable? You want to go with a provider that can offer financing in any store, in any part of the country, with any product line. You don’t want to be limited to a small point player, as they are unlikely to get the consumer volume needed to offer the best rates.
By adapting online trends to the in-store experience, retailers can effectively deploy custom-made retail point-of-sale services that are appealing to younger consumers. And ensuring in-store options enable a range of consumers to quickly borrow what they need when they need it, using the latest scalable technology, can benefit retailers and consumers alike.
