When it comes to evaluating a POS lender for your business, merchants, service providers, and contractors typically focus on two metrics – approval rates and cost.
Pricing is straightforward to assess, but what about approval rates? Are they a reliable metric for comparing financing programs?
While approval rates are essential, they are only part of the story. If upgrading your point-of-sale financing experience is on your agenda, there are additional factors that you should consider to evaluate finance providers uniformly.
- POS financing approval rates
- Approval amount
- Loan terms & conditions
- Does the financing amount offered meet the sale amount
A summary of each is provided below.
POS Financing Approval Rates
What does it mean if a point-of-sale finance provider indicates they have an approval rate of 80%? Are they referring to ecommerce applications? Perhaps they are talking about in-person or in-store applications. The consumer finance provider likely has different underwriting strategies for each channel that affect approval rates for that channel. Given this complexity, a better indicator would be approval percentages by consumer fico tier and channel(s) as appropriate.
Another important factor when selecting a consumer lending partner is whether their minimum and maximum loan amounts align with your ticket requirement. For example, if your average ticket is less than $300, you are probably focused on BNPL providers. If the average ticket is $3,000, deferred interest options like 0% interest and extended terms will be critical.
Loan Terms & Promotions
The most popular POS lenders bring extra value to the table beyond just cost, approval rates and approval amounts. These providers act as a cousultant and advise you about trends and best practices in consumer finance. Consider the added value of a partner that can explain the benefits of a deferred interest program versus equal payments with no interest or why installment loans might be better than revolving lines of credit for your customers.
Financing Offered Meets the Sale Amount
This is one of the most critical, but often overlooked, metrics when choosing the best lending partner for your business.
You need to understand the percentage of the lender loan offers that equals or exceeds the purchase amount requirement. Having a high approval rate is great, but what good is a loan offer that doesn’t allow the consumer to make the purchase?
For example, how helpful is it to offer your customers a $1,500 loan when trying to sell a treadmill for $2,500?
Purchase Conversion Rate
The Purchase Conversion Rate is arguably the most important metric and answers whether a finance program will drive sales.
The conversion rate is the percentage of offers accepted by the consumer and utilized to make a purchase. Factors that impact conversion rate can include:
- Is the consumer redirected from the merchant website to apply?
- Is there a seamless transition from one program to another if the consumer is declined?
- Are the repayment terms and conditions agreeable?
If the consumer experiences friction anywhere in the purchase process, they are more likely to drop out and abandon the cart.
A seamless customer journey with agreeable terms and conditions is more likely to result in a purchase.
The Embedded Lending Platform Advantage
One of the major advantages of ChargeAfter’s embedded lending platform is the ability to provide merchants with these analytics and much more. Merchants can view the performance of each lending partner in a single console and on a near real-time basis.
With this data, merchants are empowered with the tools they need to better evaluate the performance and effectiveness of their lending partners, identify any gaps in consumer coverage, evaluate new promotion offers, and even perform A-B testing with various lenders.
ChargeAfter operates the largest network of lending partners offering installment loans, private label credit cards, revolving lines of credit, BNPL, subprime lending, lease-to-own, and even B2B financing. A single integration with ChargeAfter provides you with access to all of the programs and tools you need to maximize finance penetration.
About Kevin Lawrence
VP Global Lender Relations
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, financial institutions, and retailers. Kevin is an expert in embedded consumer financing and B2B financing and has a deep understanding of current trends and where the industry is heading.