Buy Now, Pay Later (BNPL) vs Consumer Financing Platforms

The prevalence of Buy Now, Pay Later (BNPL) schemes has been remarkable in recent years, capturing the attention of more than half of U.S. consumers, according to data from Bankrate.  However, despite the popularity of this type of loan, BNPL is decreasing in popularity and is only one of many point-of-sale financing options

In this article we explore BNPL and explain how it is only one element of the broader consumer financing market. 

What is Buy Now, Pay Later (BNPL)?

Buy Now, Pay Later (BNPL) revolutionizes the purchasing process by allowing consumers to defer the full payment for goods and services. Through this innovative payment model, shoppers can instantly finance their acquisitions, repaying the amount in fixed, interest-free installments over a predetermined time frame. For example, a purchase worth $100 could be divided into four installments of $25 each.

This financing solution has seen widespread adoption across various business sectors, especially among e-commerce retailers, for its ability to significantly uplift conversion rates, augment average order values, and broaden customer bases. At the end of 2022, retailers offering BNPL options reported up to a 30% increase in sales volume, according to an article in PYMNTS, attesting to the method’s effectiveness in enhancing sales performance while offering customers the flexibility of staggered payments.

The Rising Popularity of Buy Now, Pay Later

Buy Now, Pay Later (BNPL) services have surged in popularity, with 50 million consumers in the United States adopting this flexible payment option over the past year, according to PYMNTS research. This trend reflects a growing consumer appetite for manageable payment plans and signals a significant opportunity for merchants, as nearly 60% of consumers are aware of BNPL. Implementing BNPL options can increase sale likelihood by 20% to 30% and raise the average transaction size by up to 50%, translating into considerable revenue boosts for retailers. Additionally, a recent survey highlighted that nearly 70% of customers spend more when using BNPL services, further encouraging merchant adoption. This financial model benefits businesses by driving sales, increasing ticket sizes, and promoting financial inclusion among diverse groups, including recent immigrants, by making essential services more accessible. Despite the consistent use of BNPL among U.S. shoppers since 2021, interest in future use has grown, indicating an expanding market. The advantages for merchants are clear: offering BNPL can significantly enhance customer spending behavior and loyalty, underscoring the importance of overcoming any implementation challenges to capitalize on this lucrative trend.

How do Buy-Now-Pay-Later Services Work?

BNPL services facilitate a streamlined shopping experience, enabling loan application at checkout, available for both online and in-store purchases. The approval process from the BNPL platform is swift, leading to an immediate initiation of the repayment plan with an upfront payment at purchase. The ensuing installments are designed to be interest-free, with additional fees applied only in instances of delayed payments.

How Buy-Now-Pay-Later Services Make Money

BNPL platforms derive revenue from two primary sources: merchants and consumers. The merchant fees might include an initial setup cost and a per-transaction charge, whereas consumer fees generally entail penalties for late payments. This dual-income model supports the operational viability of BNPL services, offering interest-free installment plans to shoppers.

What Are The Benefits Of Buy-Now-Pay-Later Services?

BNPL services streamline the checkout process, offering a seamless and personalized payment experience that caters to customer preferences. These benefits extend beyond convenience, as BNPL options also improve conversion rates, and elevate average order values. 

Challenges with Providing Buy-Now-Pay-Later Options

Despite the advantages, BNPL solutions have their limitations, particularly concerning credit inclusivity and the financing of larger purchases. The existing one-size-fits-all approach of many BNPL providers fails to accommodate the diverse financial needs of all consumers, potentially leading to higher default rates and financial strain for those unable to meet repayment obligations. Further, BNPL providers face new regulations and legislations in 2024 which could challenge their existing models. 

Consumer Financing Platforms

Distinguishing themselves from BNPL services, consumer financing platforms offer more flexibility.. These platforms, by connecting with multiple lenders, are able to tailor financial solutions to individual consumer needs more effectively, making them a preferable choice for merchants and their customers. Lenders also benefit from this model which connects them to suitable borrowers at their moment of need, creating a win-win-win situation.  

BNPL vs. Consumer Finance

There are a number of fundamental differences between the Buy Now Pay Later scheme (BNPL) and traditional consumer finance which affect the choice of consumers and investment behavior. The first difference is the simplicity of BNPL because there is no interest on short-term purchases, which means that for those people who would like to make smaller payments without paying extra costs, this can be an ideal option. Consequently, due to these factors, BNPL has become very popular with less expensive items that can be easily repaid over a shorter period of time.

Unlike BNPL services, which usually charge no interest, traditional consumer finance—credit cards and personal loans usually involve interest rates and sometimes additional fees; however, it provides more freedom when choosing an amount of the loan as well as its repayment duration. So, in this case, it is more preferable for major purchases or consolidation of debt over the longer time horizon. The credit check required by the banks before granting such type of credit is a barrier for some consumers who have had earlier problems with repayment but also a benefit ensuring that they will not be burdened with further financial obligations beyond their means.

When deciding between BNPL and consumer finance, consumers’ financial health as well as their liquidity are of much concern. The zero-interest installment options provided by BNPL might be pocket-friendly when one needs to make an urgent purchase, but the possibility of higher credit limits and a longer repayment period on consumer finance acts as a safety net for bigger financial requirements or unforeseen contingencies. In order to choose between BNPL and traditional consumer finance, consumers must consider their financial standing along with fiscal stability in the long term, weigh immediacy versus flexibility, and assess growth possibilities in terms of larger credit lines.

Selecting the ideal BNPL provider necessitates an assessment of factors such as repayment terms, credit limits, and customer demographics. Providers differ in their offerings, for example:

  • Affirm: provides installment plans ranging from short-term options to loans extendable up to 36 months, with varying APRs based on the purchase and customer creditworthiness.
  • Afterpay: (Clearpay in the UK and EU) offers four interest-free payments, catering to users in multiple regions with its expansive user base.
  • Klarna: introduces flexibility with payment plans that spread the cost over several months or allow for deferred payments, in addition to offering financing options for longer periods.

An embedded lending platform, such as ChargeAfter’s, ensuring a broad range of consumer finance options beyond BNPL, including revolving credit, short and long-term loans, private label credit cards, lease-to-own, and B2b options, catering to diverse consumer needs and enhancing approval rates.

Selecting the Right POS Financing  Solution

In choosing a POS financing solution , merchants should consider factors such as repayment terms, credit limits, and geographical reach to ensure alignment with their product offerings and customer demographics. Platforms like ChargeAfter simplify this selection process by providing access to a multi-lender network that offer competitive terms, enabling merchants to seamlessly add or remove lenders from their points of sale, and deliver a multi-lender waterfall financing experience that boosts approval rates to up to 85%. 

Integration and Support Across Platforms

ChargeAfter enables easy integration of financing options at omnichannel points of sale, ensuring merchants can offer diverse financing solutions effortlessly. The platform also provides robust post-sale management tools, facilitating efficient transaction oversight and customer service and actionable insights to optimize the lending offer and convert more sales.

For businesses aiming to maintain brand consistency, the platform offers white-label financing solutions that allow merchants to customize the financing experience to align with their brand identity, enhancing customer recognition and trust.

Want to learn more? Reach out to us here.

Cash vs. Credit Card vs. Consumer Financing 2024 Trends

In consumer finance, the methods we use to pay for goods and services are significantly transforming. Innovative financing solutions challenge traditional payment methods like cash and credit cards, reshaping consumer spending habits and preferences. This shift not only influences how consumers choose to pay for goods and services but also offers new opportunities for merchants to enhance their sales strategies. Let’s explore the evolving trends in cash, credit card use, and the burgeoning field of point-of-sale (POS) financing.

Cash: The Decline of Transactions

The journey towards a cashless society has accelerated, driven by the advent of mobile and digital wallets. Despite the United States trailing behind countries like the United Kingdom, Norway, China, and Canada regarding digital payment adoption, a notable decline in cash usage is evident. Federal Reserve data highlights that cash accounts for only 20% of transactions in the U.S., predominantly for small purchases with an average value of $22. The trend away from cash is becoming more pronounced. Pew Research Center noted a significant increase in Americans who report not using cash for purchases in a typical week, jumping from 24% in 2015 to 41% in 2023.

Credit Cards: A Waning Popularity

Credit cards, once the cornerstone of unsecured borrowing in the U.S., are witnessing a dip in popularity, especially among younger generations. GlobalData’s 2023 research revealed decreased credit card ownership among Americans under 35. This shift is partly attributed to the stringent borrowing conditions, exemplified by a 20% loan rejection rate reported by the Federal Reserve in July 2023, following multiple interest rate hikes. The search for alternatives is driven by the high average credit card APR, which stands at nearly 25%, pushing consumers to seek more favorable financing options.

POS Financing: The Emergence

The development of POS financing technology has introduced many financing products into the market, revolutionizing consumer financing at checkout. This sector, predominantly spearheaded by fintech innovations, offers a range of loans, including 0% APR, diverse installment plans, and B2B financing solutions. ChargeAfter’s data underscores a significant uptick in consumer spending through financing, with a 53% increase in the first quarter of 2023 compared to the previous year. The allure of POS financing lies in its ability to provide immediate, flexible financing options, often with more favorable terms than traditional credit cards.

Consumer Financing: the Future Landscape

Consumer financing is veering towards POS solutions as younger consumers move away from credit cards. The evolving financial technology landscape heralds a future where consumer financing is increasingly integrated into the shopping experience, offering seamless and versatile financial solutions.

While cash offers simplicity and debt-free transactions, it is overshadowed by the convenience and benefits of digital payments. Despite their flexibility, credit cards are becoming less favorable due to the potential for high-interest debt. In contrast, POS financing platforms that support a multitude of lenders and integrate seamlessly into omnichannel retail environments are rapidly gaining traction among merchants eager to offer their customers a breadth of financing options.

In conclusion, the dynamics of consumer payments are shifting dramatically, with POS financing emerging as a critical player in the retail sector. As technology continues to evolve, the potential for innovative consumer financing solutions promises to reshape the financial landscape, offering consumers more control over their spending while providing merchants with powerful tools to boost sales and customer satisfaction.

Want to learn more? Reach out to us here.

Boost Your Dental Financing with an Embedded Lending Platform

Offering patients a seamless path to dental financing choices is a strategic must for dental providers in 2024. More patients than ever before are exploring financing options as demand for elective treatments rises. To meet this demand, dental providers must offer diverse financing solutions that cater to a broad spectrum of patient needs. With an embedded lending platform, you can easily provide your patients with seamless access to multiple lenders to offer the best dental financing for patients.

An embedding lending platform simplifies the financing process, enabling dental practices to offer multiple financing options. The platform integrates directly into a dental service’s existing systems, allowing patients to apply for dental financing options without leaving the dentist’s office, website, or call center. In doing so, dental providers can enhance customer loyalty by ensuring a favorable financing experience with approval rates of up to 85% for their patients.

Navigating dental financing: opportunities and pitfalls

Lenders categorize borrowers based on their credit scores. ‘Prime’ are those with excellent credit, ‘near-prime’ those with good but not perfect credit, and ‘subprime’ those with poor credit histories. To meet the needs of patients across this spectrum of credit, dental providers must incorporate multiple lenders into their financing offerings. This is a process fraught with challenges if handled independently, as:

  1. Lender integrations are complex, time-consuming, and require significant resources.
  2. Day-to-day management of each lender is complex and time-consuming. 
  3. Dependency on single lenders becomes risky if terms change or if a financing provider ceases operations.
  4. Patients may need to complete several applications before being approved, each with its own distinct set of requirements.
  5. Staff must navigate and understand the systems of multiple lenders, each with its own processes.

The only way to counter such challenges is through a platform-first approach to point-of-sale financing. This will free dental practices up to focus on their core operations and patient care while providing an exceptional dental financing experience for their patients with higher approval rates and better conversion. 

Enhance dental financing with platform-first approach

Streamlining access to personalized financing solutions is a game changer. By providing patients with a flexible and choice-driven financing experience, dental practices can dramatically enhance the patients’ purchasing experience and deliver high approval rates. As a result, dental practices observe a notable rise in the average transaction value, leading to an overall boost in sales, stronger patient relationships, and a competitive edge in the healthcare marketplace. An embedded lending platform:

  1. Facilitates a seamless connection between dental practices, multiple lenders, and patients covering the entire credit spectrum on a single platform.
  2. Simplifies the application process and enhances the patient’s experience wherever they are receiving service: in-clinic, through a call center, or online. 
  3. Results in high approval rates of up to 85% that in turn boost conversions.
  4. Manages all financing activities efficiently, from a single application to instant approvals to post-sale management including disputes, reconciliations, and customized reporting.
  5. Provides data and analytics to optimize the financing offer and create personalized relationships with patients.

Integrating an embedded lending platform into the patient care journey is the most effective way to meet these needs, providing a seamless financing experience for patients and clinics. Dental practices that integrate an embedded lending platform significantly improve the patient experience. Patients enjoy quicker service, with immediate access to a range of dental financing options tailored to their individual needs and financial situations, all without the need for multiple applications. This hassle-free approach to dental financing helps patients feel more at ease and valued, fostering a sense of loyalty and satisfaction with their dental care provider.

Why ChargeAfter is the platform of choice for dental practices

ChargeAfter’s embedded lending platform enables dental practices to seamlessly integrate financing into the patient journey, whether online, in clinics, or via call centers. The platform connects dental practices with a network of lenders that cater to a full range of patient credit profiles. Lenders on the platform offer a diverse range of financing products, including installment plans and revolving credit, to cater to various patient needs and preferences.

By simply filling out a quick application, patients are matched with the best financing options through a waterfall financing approach, where if a patient isn’t approved by the first lender due to their credit score, their application automatically ‘falls’ to the next lender in line until the best match is found. This process ensures that patients receive tailored dental financing solutions within seconds based on their individual credit needs and preferences. It is easy for dental practices to manage, supporting the entire financing process in a single platform enabling quick and easy refunds, reconciliations, dispute management, reporting, and lender optimization. 

In 2024, personalizing patient financing will become not just an option but a necessity for dental practices aiming to distinguish themselves in a competitive landscape. As we navigate through a year of innovation and patient-centered care, offering tailored dental financing solutions will emerge as a key strategy to make patients smile wider than ever before.

References: Article in

Visit us at Payments MAGnified 2024: Hyatt Regency Dallas TX

Payments MAGnified 2024 by Merchant Advisory Groups (MAG) will take place from 20 Feb to 23 Feb 2024 at the Hyatt Regency Dallas. TX (USA)

Payments MAGnified at the Hyatt Regency Dallas - ChargeAfter

If you are prioritizing enhancing your POS financing in 2024 and are heading to Payments MAGnified on February 21nd & 22nd – we would love to meet!

As the industry-leading embedded lending platform for point-of-sale financing, we can help you simplify the financing journey for you and your customers. Our easy-to-use platform and network of lenders deliver up to 85% approval rates making for happier customers and more sales.

Come and meet the team to learn how ChargeAfter can help you unlock the full potential of POS financing. You can find us at Booth 216 or schedule a meeting.

Payments MAGnified 2024 will delve deeper into the technology of payments, connecting merchant IT professionals and their business partners with technology sponsors through technology-focused educational sessions and engaging networking events. The MAG Tech Forum, aligned with the bi-annual MAG conference, is designed explicitly for payment IT professionals. It provides education and networking opportunities focused on innovative uses of new relevant payment technologies.

This event for professionals and businesses in the financial payments industry, offers networking opportunities and customizable experiences catered to business- and tech-minded individuals. Payments MAGnified is dedicated to exploring the depths of industry challenges and opportunities, focusing on new advances in payment technologies, consumer financing, and embedded financing, and other topics.

3 Benefits of Integrating Waterfall Financing

waterfall financing for consumer lending

In 2024, sales channel strategies need to be diverse and optimized to suit the purchasing behaviors of the modern shopper. In this article, we explore sales channel strategies in more detail and share 3 benefits of a sales channel strategy that integrates waterfall consumer financing. 

What is waterfall financing?

Waterfall financing, from a consumer financing perspective, is a method of consumer lending at the point of sale whereby a shopper loan or credit application passes through a series of lender tiers prioritized for receiving the best loan interest and terms to lower-tiered lenders offering the next best loan offer.

Here’s how it typically works:

  1. First Tier Criteria: Initially, an application is evaluated against the strictest criteria. These criteria include a high credit score, low debt-to-income ratio, or other financial stability and creditworthiness indicators. Most applicants who meet these criteria are considered low-risk borrowers.
  2. Subsequent Tiers: Applications not meeting the first tier’s stringent requirements are passed down to the next tier. Each successive tier has slightly more relaxed standards than the one before it. For instance, the second tier might accept lower credit scores or higher debt-to-income ratios.
  3. Approval or Decline: This process continues until either the application is approved under one of the tiers’ criteria or fails to meet all tiers’ standards and is ultimately declined.

What is a sales channel strategy?

A sales channel strategy refers to the marketing tactics used across several sales channels. In the modern eCommerce landscape, a single sales channel is simply not enough. Online stores should utilize a variety of channels, from social media platforms to Google Shopping and beyond, to attract new customers and retain existing shoppers. A sales channel strategy considers how best to engage consumers through online marketplaces, modern marketplaces, wholesale selling, retail selling, and paid advertising. Using a combination of platforms within these avenues will lead to greater sales channel success. 

Waterfall financing from ChargeAfter will also support your sales channel strategy by empowering your customers’ purchases. By partnering with ChargeAfter, you can offer your customers access to a wide network of lenders capable of facilitating their shopping needs across your entire sales channel strategy. Let’s take a closer look at the benefits of a sales channel strategy that integrates waterfall consumer financing. 

Benefits of waterfall financing

Benefits for shoppers

Waterfall financing makes shopping more accessible than ever. Merchants that use waterfall financing give their shoppers access to lenders who can finance their shopping decisions. Customers can receive this financing without having to undergo credit checks, making consumer financing a feasible choice for shoppers unwilling to turn to their financial institution for support. This, coupled with favorable repayment plans makes for an efficient shopping experience that appeals to new and existing customers. 

  1. Increased access to credit: Waterfall financing allows individuals who might not meet the strictest lending criteria to access credit still. This benefits those with lower credit scores or less conventional credit histories.
  2. Opportunities to build or repair credit: For borrowers looking to build or repair their credit, gaining access to credit through less stringent tiers can provide this opportunity as long as they manage their debt responsibly.
  3. Tailored financial products: Since waterfall financing involves different tiers with varying criteria, consumers might find products more tailored to their financial situation rather than a one-size-fits-all approach.

Benefits for lenders

  1. Market expansion: This approach allows lenders to serve a broader range of customers. They can cater to prime borrowers in the upper tiers while offering products to near-prime or subprime borrowers in lower tiers, thus expanding their market reach.
  2. Improved loan performance: Using more detailed criteria to assess borrowers, lenders can better predict loan performance and reduce default rates. Each tier can be optimized based on the risk profile and past performance of borrowers in that category.
  3. Flexibility and responsiveness: Waterfall financing provides a framework for lenders to quickly adjust their lending criteria in response to changing market conditions, regulatory environments, or shifts in their risk appetite.
  4. Data-driven decisions: This approach often relies on comprehensive data analysis, allowing lenders to make more informed and precise decisions based on various variables beyond just credit scores.

Industry benefits:

  1. Financial inclusion: By providing credit opportunities to those whom traditional criteria might exclude, waterfall financing contributes to financial inclusion efforts.
  2. Innovation in lending: This approach encourages innovation in the lending industry as lenders develop more sophisticated models to assess borrower risk across different tiers.

In summary, waterfall financing offers a more nuanced and flexible approach to lending that can benefit a wide range of consumers, especially those who might be underserved by traditional models, while also allowing lenders to manage risk and expand their customer base.

Originally published: 12 Jan 2022
Updated: 24 Jan 2024

Get Ready for Black Friday with POS financing

Black Friday is characterized by deeply discounted deals, early store openings, and unparalleled consumer enthusiasm, it’s been consistently marked as the busiest shopping day in America with merchants preparing for months in advance.

What is Black Friday?

Black Friday, the day following the U.S. Thanksgiving holiday heralds the onset of the Christmas shopping season. This year it falls on Friday 24 November. In 2022 more money was spent than in the previous year with a rise in both instore and online sales.

In 2022:

  • In-store sales in the US increased 12% YoY (Mastercard)
  • Ecommerce sales in the US grew 14% YoY (Mastercard)
  • Global online sales on Black Friday grew by 3.5 in 2022 to reach $65.3 billion (Salesforce)
  • Payments made using BNPL increased by 78% (Amazon)

Black Friday Online Spending (2017-2022) - Consumer Finance stats

Why is Black Friday Important?

While the shopping spree typically extends to the subsequent “Cyber Monday” and spans an entire “Cyber Week” for many retailers, Black Friday remains emblematic. Beyond retail, this day offers an economic snapshot, a barometer for the nation’s financial health. Through the lens of Keynesian economics, which posits that consumer spending fuels economic activity, Black Friday’s sales figures can provide insights into the nation’s economic trajectory and consumer confidence.

Challenges Shoppers Face on Black Friday

Merchants meticulously prepare to cater to an influx of shoppers. This involves bolstering their eCommerce platform’s performance to prevent site slowdowns or crashes, diversifying payment options, especially with POS financing to enhance transaction success, and leveraging the efficacy of email marketing, which boasts a 4.1% conversion rate. Moreover, they strategize their discounts well in advance and prioritize a seamless online shopping and checkout experience to ensure customers enjoy an uninterrupted journey, optimizing both satisfaction and sales.

Synonymous with mega deals, Black Friday also comes with its own set of challenges for eager shoppers. One of the primary concerns is the potential for overspending. The alluring discounts and limited-time offers make deviating from a pre-decided budget easy. Shoppers might spend more than intended, especially if shopping with a credit card.

A Review of Point-of-Sale POS Financing Products for Retailers

Another significant challenge is the chaotic in-store experience. Packed aisles, long queues, and overwhelming crowds can be a deterrent for many. In some cases, enthusiastic shoppers brave the cold and stand in queues for hours, only to discover that their desired product is out of stock or they get to the till only to be declined for financing.

black friday shopping crowds - embedded finance platform

Demand for consumer financing at the point of sale continues to rise, yet many retailers still struggle to seamlessly provide adequate financing options. Low approval rates and a subpar customer experience can result in cart abandonments, causing both frustration for the shopper and lost sales for the store.

Overcome POS Financing Challenges in Time for Black Friday

Point-of-sale financing has rapidly evolved, with consumer demands shifting and the economy showing stress. Black Friday, the shopping bonanza, is just around the corner, and merchants must be prepared to face the challenges this presents, especially with their point-of-sale financing offers. A recent survey from ChargeAfter, the embedded lending platform for point-of-sale financing, highlights the challenges that merchants face with their POS financing, including low approval rates, difficulties integrating multiple lenders, challenges with post-sale management and more.

Consumer financing is increasingly playing a strategic role for merchants as consumer demand grows. This makes perfect sense in a tumultuous economy with high inflation and soaring interest rates. For consumers, the assurance of personalized financing choices that can include spread-out payments with little to no interest, or access to other lending options such as lease-to-own, revolving credit and so on can be a beacon of hope, enabling them to commit to bigger purchases they otherwise might have foregone.

It is no longer possible for merchants to manage a robust financing offer. To provide customers with an omnichannel waterfall financing experience, they need a technology provider.

How Jerome’s Furniture Tamed Their POS Financing Challenges

Merchants who’ve recognized and adapted a platform-first approach to this trend are reaping considerable benefits. According to a case study of Jerome’s Furniture experienced a substantial uptick in sales – up a staggering 67%. These figures become even more compelling when you factor in the economic decline.

By weaving consumer financing seamlessly into their business model, Jerome’s Furniture underscored their commitment to customer empowerment and saw a surge in customer financing adoption. This indicates a vast segment of their clientele is now leveraging the store’s flexible payment options. The most commendable aspect? Despite the market turbulence in 2022 and 2023, Jerome’s Furniture maintained high approval rates, thus ensuring that customers had undeterred access to a more manageable and less burdensome financial framework.

Jeromes Furniture - Black Friday deals with Consumer Finance deals

So, as Black Friday looms, merchants have a clear strategy laid out for them: embed multiple lenders into the point of sale through an embedded lending platform. Not only does it promise to increase sales, but it also fosters brand loyalty and trust. In these unpredictable times, providing customers with financial ease can set a brand apart, making it a beacon for those looking to make the most of their Black Friday shopping.

Ready to upgrade your financing for Black Friday? Request a demo.

Rise of Consumer Financing: 5 Factors Driving This Trend

The contemporary financial landscape has significantly shifted towards consumer financing, driven by technology, evolving consumer behavior, and changing economic conditions. Point-of-sale (POS) financing allows consumers to purchase goods and services, especially big-ticket items, by accessing loans embedded into the customer journey. It presents an alternative to traditional financing methods like credit cards, debit cards, and cash. This rise is facilitated by embedded lending platforms like ChargeAfter, which have revolutionized the retail space by enabling businesses to offer diverse lending options to their customers.

Consumer financing products are diverse and tailored to meet the various needs of customers. These financial tools range from Revolving Credit Line and Long-Term Installment Loans to Buy Now Pay Later (BNPL), each designed to facilitate purchasing, provide flexibility in payment, or support specific financial goals. Understanding these products and finding the right fit can be essential in retaining customers and increasing sales. You can read more about the different consumer financing products available and explore the various options for POS Financing Products for retailers here.

Let’s delve into five major factors contributing to this upward trend.

1. Rising Consumer Demand Amid Inflation and Rising Interest Rates

ChargeAfter data shows that applications for POS financing significantly increased in Q1 2023 compared to the same period in 2022. This trend looks set to continue, as shoppers seek flexibility in a time of escalating prices and rising interest rates. Consumer financing is predominantly prevalent for high-priced goods and services like furniture, electronics, jewelry, home improvements, and wellness offerings. However, inflation has also driven shoppers to apply for financing for lower-cost items. This trend directly results from consumers’ necessity to maintain their purchasing power amid adverse economic conditions.

2. Aversion to Credit Card Debt Among Millennials

The fallout from the financial crisis of the early 2000s profoundly impacted Millennials, who are now more aware of the pitfalls of credit card debt than previous generations. This awareness has led to a growing interest in alternative financing options.
A recent nationwide survey by the Federal Reserve Bank of New York revealed that concerns over ongoing price inflation are causing consumers to feel increasingly pessimistic about credit access. The perception of obtaining credit is declining, with 58% of respondents stating that it’s either much or somewhat more challenging to access than just a year prior. This issue is particularly prevalent among the younger population, as 57% of millennials have reported facing challenges related to their credit scores when trying to acquire financial products.

The aversion to high-interest rates coupled with the demand for favorable payment terms has paved the way for consumer financing to become a mainstay. The prospect of predetermined monthly payments and a clear payoff date makes this option attractive, enabling consumers to manage their debt effectively without burdening traditional credit card debt.

3. Efficiency and Integration of Contemporary Checkout Financing

The modern iteration of financing has brought significant improvements in efficiency and integration. For instance, financing has been seamlessly incorporated into the checkout process, much like well-known options such as Apple Pay, Visa Checkout, and Google Pay. This integration has successfully eliminated additional steps, thus removing potential barriers to conversion. About 25% of purchases are made through consumer financing at checkout for mid to high-ticket items. The simplicity of the application process, coupled with quick financing options, enhances customer satisfaction and leads to faster checkouts.

4. Diversity of Lending Options Increases Approval Rates

Consumer financing takes many forms, providing a greater likelihood of approval for most shoppers. Those with excellent credit may opt for higher payments at a lower interest rate for a shorter repayment period. On the other hand, someone with less-than-perfect credit may prefer more flexible terms. This flexibility is made possible due to the variety of lenders available, ranging from traditional institutions to lease-to-own offers. This diverse lender network can offer approval rates as high as 85%. Access to appropriate offers at the time of purchase significantly boosts the chances of transaction completion, leading to higher customer satisfaction.

5. The Role of E-commerce and In-Store Financing

The proliferation of e-commerce has had a profound impact on the growth of consumer financing. The ability to offer flexible payment terms online dramatically enhances the customer’s shopping experience, improving conversion rates and customer loyalty. Likewise, in-store financing allows physical retail locations to provide the same flexible terms and omnichannel experience, bridging the gap between the online and offline retail experience.

The Future of Consumer Financing

The rapid growth and acceptance of consumer financing, both in-store and online, are reshaping the retail landscape. By leveraging these financing options, businesses can meet the diverse financial needs of their customers, thereby enhancing the overall customer experience and fostering long-term loyalty. Consumer financing is not merely a trend but a powerful tool that’s here to stay in the evolving world of retail.

About Mark Denman
Mark has worked in the near-prime and tertiary lending space for 30 years. As EVP of Merchants Sales & Success at ChargeAfter, he is responsible for ensuring merchants and lenders get the best care possible.

The Transformative Power of Embedded Lending in Customer Journeys

The retail industry has successfully navigated a period of uncertainty in recent years. Retailers have improved every step of the customer journey by plugging into technology to respond to challenges such as the COVID-19 pandemic and supply chain disruptions. Shoppers today enjoy a better, more personalized customer experience than ever before. We can buy goods and services online or offline, choose to have our purchases delivered in two hours or two days, buy “off the shelf” or customize our purchases – whatever suits us best.

However, during this era of inflation and high interest rates, retailers have a new struggle: providing choice and personalization in consumer financing.

The Evolving Landscape of Consumer Financing

For most of the last half-century, credit cards have been the primary solution for purchase financing. Analysis by McKinsey states that credit cards remain the most popular unsecured borrowing in the United States. Credit card borrowing accounts for 78% of balances, with a 10% growth in transaction volumes in recent years, contributing to transaction values of $49 trillion in 2021.

However, the credit card is beginning to slow as a legacy solution. Traditionally, the credit industry has worked around, rather than with, the increasing segmentation of borrower profiles. Significantly, this limitation is manifesting in the form of a demographic gap. Research commissioned by GlobalData revealed a marked rise in the percentage of under 35s not possessing a credit card — 47% in 2022, compared to 39% in 2016.

Instead, younger and underserved shoppers are adopting point-of-sale loans embedded in the customer journey as an alternative to credit cards. These demographics enthusiastically embraced Buy Now Pay Later (BNPL) as an attractive alternative for consumer financing. BNPL offers convenience through competitive APR rates, predictable repayment schedules, and flexible approval requirements. However, it has its limitations. Originating from the fintech industry, new regulations by the Consumer Financial Protection Bureau threaten BNPL providers as loan defaults grow.

Additionally, this type of loan is only suitable for small-ticket items. Shoppers need an alternative to finance big-ticket purchases such as furniture, electronics, home improvement, jewellery, etc. And while plenty of other lending products are available for these purchases, retailers struggle to offer their shoppers a choice of financing options at the point of sale.

The Challenges of Existing Embedded Lending Frameworks

Embedded lending is experiencing rapid growth, with market revenue reaching US$4.7 billion in 2021 and projected to rise by US$32.5 billion in the next decade. However, given the complexity of embedding multiple lenders into omnichannel customer journeys, currently, most retailers offer a single-lender solution.

This single-lender model limits retailers’ ability to provide financing options that cater to their customers’ needs and preferences. Lenders typically specialize in specific financing products, such as installments, 0% APR, BNPL, lease-to-own, etc., targeting specific customer segments – prime, near-prime, or subprime. This limited financing focus leads to poor approval rates, abandoned carts, lost sales, and customer dissatisfaction. Furthermore, relying on a single lender exposes retailers to the risk of changing lending conditions, especially as lenders tighten their underwriting strategies and approve lower approval rates and transaction values.

Retailers know this, and many attempt to integrate a second lender into their offer. However, this approach results in a heavy lift for the retailer and a poor and fragmented experience for the customer.

However, this is changing. The technology enabling retailers to embed multiple lenders into omnichannel customer journeys is now available.

An increasing number of retailers are embracing a platform-first approach to point-of-sale financing.

Unlocking the Potential of Embedded Lending in Customer Journeys

Given the difficulties in managing multiple lenders, retailers are adopting a platform-first approach quickly. ChargeAfter’s embedded lending platform enables retailers to easily configure a waterfall of lending options that address all credit profiles from credit-invisible to super-prime and everything in between into omnichannel customer journeys.

This model benefits all of the players in the ecosystem. Retailers offer flexible financing options to customers at their moment of need, resulting in up to 85% approval rates, increased sales, higher average order value (AOV), and improved customer satisfaction and loyalty. Shoppers access financing choices from trusted lenders, enabling them to purchase the goods and services they desire with the terms and conditions that best suit their needs and preferences. Lenders, in turn, gain direct access to customers needing their services. This comprehensive solution creates a win-win-win situation for the entire consumer financing ecosystem.

About Kevin Lawrence

Kevin has worked in the banking and finance industry for over a decade. He has worked closely with some of North America’s largest banks and financial institutions and retailers. Kevin is an expert in embedded consumer financing, with a deep understanding of current trends and where the industry is heading.