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.

5 Key Factors When Selecting a Consumer Financing Platform in 2023

In the dynamic world of consumer finance, the point-of-sale (POS) financing platform you choose can be essential to your success. As modern shoppers become more discerning and technology-savvy, their expectations for seamless and flexible purchasing experiences have soared. This shift in consumer behavior underscores why the right POS financing platform is crucial for merchants aiming to thrive in today’s competitive landscape.

A cutting-edge POS financing platform goes beyond simply processing transactions—it plays a pivotal role in shaping the customer journey. Offering many financing options empowers customers with financial flexibility, enhancing their purchasing power. POS financing turns potential browsers into confident buyers for high-ticket items that may otherwise be out of reach.

Simultaneously, these platforms open up new opportunities for businesses. An efficient POS financing system can increase conversion rates, boost average transaction values, and foster customer loyalty. By offering consumer financing options, businesses demonstrate an understanding of customers’ financial needs and position themselves as supportive partners rather than just vendors. 

In essence, the right POS financing platform forms the backbone of your consumer financing strategy. It merges convenience with financial accessibility, making shopping a less daunting experience for budget-conscious customers. As such, your choice of POS platform is a decision that reverberates throughout your entire operation, impacting sales, customer satisfaction, and long-term business growth. This is why investing time and resources into choosing the ideal POS financing platform is an absolute necessity rather than an optional luxury.

Here are 5 crucial factors when choosing the best POS financing platform for your business:

  1. Omnichannel experience
  2. Wide network of lenders
  3. Easy integration and management
  4. Comprehensive analytics and data 
  5. White-label capabilities

1. Omnichannel Experience

In the age of digital innovation, customers crave seamless, personalized experiences. An omnichannel lending approach, which merges in-store financing with online financing options, is critical to meeting these expectations. With this approach, your customers can access financing solutions anywhere they wish to interact with your brand, be it in-store, through an online platform, or via a call center, door-to-door service, or any other point of sale in a seamless experience.

Your POS financing platform should provide a genuine omnichannel experience. In-store, customers could scan a QR code, browse a link, or use an in-store device. For e-commerce financing, the platform should support pre-approval applications, enhancing the user experience and expediting the purchase process. Integration with call centers, enabling agents to send links or codes, ensures customers can access support and services conveniently. By accommodating customers wherever they make their purchases, you’re embracing the power of omnichannel financing.

2. Wide Network of Lenders

A vital aspect of any POS financing platform is its network of lenders. A platform with a network of lenders that covers the entire credit spectrum and includes B2B as well as B2C lenders, and different geographies, positions you to meet the financing needs of all of your customers, even as their needs change. 

During this period of high interest rates and inflation, traditional prime consumers are qualifying for near-prime loans, while previous near-prime consumers may slide into the subprime category. This cascading effect can leave a significant population underserved, especially considering that only 17% of retailers offer subprime options, according to a survey by ChargeAfter

The more comprehensive your lender network, the more safeguarded you are against changes made by single lenders, such as a lender adjusting their credit box, changing their merchant discount rates, or even ceasing operations, which can leave you and your customers without an alternative. It also puts you in a stronger position to negotiate terms with lenders who are vying for your customers’ business.

The flexibility provided by an extensive network ensures a continued seamless operation and robust approval rates. 

3. Easy Integration and Management

Your POS system should offer straightforward integration and management as an embedded finance platform. Customers should find it easy to use, with a single application connecting them to multiple lenders within seconds. Additionally, it should provide real-time automated matching at the point of sale, utilizing a waterfall finance method to match customers to the best offers for their credit profile.

For merchants, an embedded lending platform should offer effective post-sales management, including dispute resolution, refunds, and reconciliations. Real-time updates on performance, volume, and order information are essential to optimize lending programs. Direct communication with lenders and tools to track, process, and resolve cases should be standard features of your chosen platform.

4. Comprehensive Analytics and Data

Any worthwhile embedded lending platform should offer actionable analytics and data. A complete view of lending data makes optimizing financing offerings and adapting to shifting market trends possible. With this data at your fingertips, you can plan marketing and retargeting campaigns that build strong customer relationships, enhancing their lifetime and average order value. 

Analytics from your platform should also help you to understand and optimize your customers’ journey, showing you where and when customers drop out and where and when they convert, so that you can easily optimize your lending program within your customers’ journeys and improve your ecommerce website performance. 

5. White Label Capabilities

A white-label POS system allows you to customize the platform to match your brand identity, increasing customer recognition and loyalty. Whether you’re looking for a white-label BNPL solution or comprehensive white-label consumer financing, your platform should be able to deliver.

Choosing a POS financing platform can be complex, given the broad range of features to consider and the multitude of providers in the market. However, by keeping these five critical factors in mind—omnichannel experience, vast lender network, easy integration and management, comprehensive financing analytics, and white-label capabilities—you’re well on your way to selecting a platform that meets your business needs and enhances your customers’ shopping experience.

Conclusion – The Market-Leading Platform for POS Financing

Retailers are increasingly selecting ChargeAfter’s embedded lending platform for point-of-sale financing. It offers everything you need to provide your customers with a fast and smooth experience at their moment of need. The platform streamlines your financing offer and is easy to manage. Its network of over 40 lenders increases the likelihood that shoppers who seek financing will be approved, with approval rates reaching up to 85%. This broader access to financing options enhances the customer experience, fosters loyalty, and ultimately drives higher sales and AOV. 

Are you ready to get your financing right? Book a Demo

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.

Big Brands Embracing Consumer Finance

Over the past few years, many retailers have concentrated on direct-to-consumer and e-commerce. As part of this – specific consideration has been given to consumer financing, and significant agreements have been made between consumer finance FinTech companies and big-brand companies such as Walmart, United Airlines, Amazon, Lenovo, and many others, even though these retailers already have well-established private label credit card programs.

Consumer appetite for consumer financing and BNPL drives merchant demand for point-of-sale financing.


Consumer appetite for BNPL

* https://www.oberlo.com/statistics/buy-now-pay-later-us-users


Beyond surveys, historical growth statistics, or forecasts for rising popularity in consumer finance, the evidence lies with two simple metrics:

—  How many companies include consumer financing at their point of sale, and
—  Are any big brand retailers are embracing it

The fact is, consumer financing has always been a staple with big retailers.

The difference in recent times is that big brands recognize the benefits of partnering with innovative FinTechs, allowing them to concentrate on their core business while benefiting from new technologies as they are developed.

Previously, this was exclusive to merchants with the resources to integrate or develop point-of-sale finance options into their platform.

Innovation by FinTechs has accelerated the adoption of consumer finance as demand by merchants is fueled by consumers’ need for affordability in the face of the current and imminent challenging financial environment.

It is essential to understand that consumer finance does not exclusively mean Buy Now Pay Later (BNPL), although BNPL does fall under the umbrella of consumer finance.

 

Evolution of consumer finance

 

Consumer financing has evolved from credit cards and prime lending solutions often offered by traditional financial institutions such as banks to a technology-diverse fintech landscape with various financial service providers and platforms.

But what does this new ‘landscape’ offer, and how do we navigate it?

We look at how merchants use various consumer finance options and highlight their benefits.

 

Credit Card

credit card payment

The credit card option at checkout is widely known to us. It is the most prevalent payment method. Almost all banks and financial institutions provide many credit card types that are accepted as payment methods offering goods or services anywhere. One can purchase anything within a predetermined credit limit and pay later without impacting their monthly budget. A key advantage of using a credit card is converting the total purchase amount into affordable equated monthly installments (EMI), facilitating easy repayment over time. EMI conversions from credit card purchases have transformed the shopping experience significantly.

 

As popular as credit cards have been, consumers know their glaring disadvantages. The most infamous being high-interest charges. Further, the prime lender provides the loan (credit). i.e., the institution that issued the credit card reduces the credit limit by an amount equal to the bill amount converted into EMIs. 

 

Buy Now, Pay Later

 

Single Lender BNPL Platform

 

BNPL (Buy Now, Pay Later) is unsecured consumer credit and an increasingly popular fintech-enabled payment option, most commonly offered on e-commerce platforms. The history of BNPL traces back to the installment plan – a way to pay for large purchases over time by spreading it over several smaller payments.

 

As a form of POS (point-of-sale) financing, credit originates directly at the time and point-of-sale, as opposed to a customer being required to secure credit from a lender ahead of their shopping experience.

Fintech companies have developed different flavors of BNPL. However, most are similar in that they have a single lender. Sometimes, as with PayPal, the lender is also the technology provider.


How BNPL works in the USA

 

Studies have shown that BNPL increases retail sales. The reason is that some consumers may not have a credit card, prefer not to use credit cards, and many times look at BNPL as a better alternative to credit card installments, as  BNPL offers an alternative to installment payments that is often with favorable repayment terms when compared to the use of credit cards.

 

Most, if not all, well-known big brands, such as Amazon, Walmart, and many more, have teamed up with BNPL FinTechs to expand their consumer financing options to increase sales while limiting risk. This strategy has proved to be successful.

 

 

Walmart

Walmart is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. With over 10,000 stores in 27 countries, Walmart offers a wide range of products, including groceries, electronics, clothing, and home goods, at low prices to attract budget-conscious shoppers. The company is known for its efficient supply chain management. Walmart added Affirm as a  BNPL for installments of 3,6 and 12 months.

Walmart Affirm BNPL

 

 

Amazon

The largest retailer in the world and founded in 1994, Amazon is a multinational technology company. It specializes in e-commerce, cloud computing, digital streaming, and artificial intelligence. 

In this example , Amazon has partnered with ZIP to offer short terms installments. 


Amazon Zip BNPL







The problem with single-lender BNPL

 

However, although very convenient, single-lender BNPL platforms do not necessarily offer the consumer the best loan terms and are limited to BNPL only.

 Customers must conform to single-lenders’ terms of service and credit score policy.

 Imposing these terms of service may result in less than desired loan terms offered to the consumer or, even worse, a failed loan origination. Both scenarios heighten the probability of sale abandonment.

Big brands have recognized that consumers shop for the best deals, not only in products and services but also in costs and terms associated with financing their purchases.

 For this reason, established merchants offer customers multiple payment options at checkout. Including multiple BNPL service providers and options. Most of which are single-lender platforms.

Bed Bath & Beyond, for instance, diversifies its consumer financing options to its customers by partnering with multiple BNPL financing providers.

Bed-Bath-&-Beyond-Consumer-Finance Multiple BNPL




Merchants have found that sale abandonment decreased because customers have more options for lending at the point-of-sale. While this is a good strategy by the merchants, it has many limitations. For one, it is still a limited short-term installment offering. Even when using several BNPLs, surveys found that almost 30% of merchants report that their consumer financing approval rates are less than 60%. 

Furthermore  –  it creates a fragmented checkout experience. Sometimes, customers may still abandon their cart, feeling overwhelmed, unsure, and confused with the various options. Decision paralysis occurs because there is too much choice.

multiple BNPL payment options

 

A study by SMARTASSISTANT found that 54% of consumers have stopped purchasing products from a brand or retailer website because choosing was too difficult.

The same is true for products & services and checkout payment options alike.



Multi-lender Consumer finance & BNPL platforms

 

As a means to offer the advantages of the different types of consumer finance options available and address their shortcomings, ChargeAfter developed a multi-lender consumer finance embedded lending platform.

Backed by over 40 lenders, in a single checkout financing option, merchants can offer their customers the best consumer loan at checkout, which is lightning fast and provides the best loan terms.

ChargeAfter’s platform and network finds the best loan suited for the customer and merchant with a streamlined and efficient process that feels indigenous to the merchants’ site and brand.

Unlike conventional consumer finance options and single-lender BNPL, surveys have shown that multi-lender consumer finance platforms achieve loan approvals of 80% or more.

ChargeAfter’s platform is seamlessly integrated throughout the merchants’ channels – online and in-store –  to create an omnichannel experience that feels proprietary to the consumer. The benefit of omnichannel experience in itself adds value to the merchant.

As a solution that maximizes return through its obsession with the customer journey experience, ChargeAfter’s platform elevates the consumer experience, reduces cart abandonment, and increases return business.

Some examples of big brands using a multi-lender platform include:

 

Lenovo

Founded in 1984 and specializing in personal computers, smartphones, tablets, and other electronic devices, Lenovo is the world’s largest PC vendor by unit sales.

Lenovo is a multinational technology company that operates in over 60 countries.

Lenovo BNPL


Jerome’s
Jerome’s Furniture is a family-owned and operated retailer that has been serving Southern California for over 65 years.

Jeromes BNPL

 

 

 

About ChargeAfter

 

ChargeAfter is the leading multi-lender white-labeled consumer financing platform and lender network for global banks, financial institutions, and merchants. Powered by a data-driven decision engine and network of international lenders, ChargeAfter streamlines the distribution of credit into a single platform that merchants can implement rapidly online, in-store, and across any point of the loan.

ChargeAfter investors include The Phoenix, Citi Ventures, Banco Bradesco, Visa, MUFG, BBVA, Synchrony Financial, PICO Venture Partners, Propel Venture Partners, and Plug and Play VC. ChargeAfter is headquartered in New York.

 

 For more information, visit https://chargeafter.com/about-us.

Free Consumer Finance Retailer Insights Survey 2023

The rapidly evolving retail financing landscape presents new growth opportunities for merchants looking to expand their businesses.

Providing an omnichannel experience for consumer financing options is becoming increasingly important. With implementing a consumer financing platform a priority, it is crucial to manage the financing cycle and integrate with in-store point-of-sale systems. In this article, we will outline key points based on ChargeAfters’ Retailer Survey on the State of Consumer Financing related to retail financing and the implications for merchants in 2023.

 

 

What is in the Survey

Explore a range of retailer priorities on consumer finance, including:

 

Demand for Consumer Financing

Find out the importance of consumer financing and retailers’ take on consumer demand for POS financing.

 

Consumer Finance Approval Rate

In the survey, we assess the frequency of customers who walk away with a poor customer experience and lost revenues for the business and how statistics are a problem for near-prime and subprime customers.

Merchants find this information critical for expanding their financing options to remain competitive. Learn about the importance of Retail financing options such as in-store financing, checkout finance, and payment plans and how these can help merchants offer financing solutions that meet the needs of their customers.

 

Demand for Expanding Consumer Finance Lenders

Retailers want to serve the entire credit spectrum better and add to their lender portfolio. See how important it is for retailers to add B2B lenders, tertiary lenders (also known as a third-look lender), and secondary lenders to their financing portfolio.

The survey reveals how the drive to broaden the variety of options for consumers translates directly to improving the customer experience and revenues for the merchants, who are currently leaving money on the table.

 

Importance of Implementing Consumer Finance

End-to-end management of the financial cycle is crucial for financing platforms. Retailer insights reveal retailer priority on implementing a consumer financing platform and the range of essential considerations required, like, how the platform should manage the financing cycle, from reconciliations to chargebacks and dispute resolution, the ability to integrate with in-store Point-of-Sale, offering an omnichannel experience and connectivity to various lenders.

 

How vital is Consumer Experience & Omnichannel?

Providing omnichannel financing options is vital for most merchants, but smaller merchants must catch up. Today’s consumers often require an omnichannel experience when utilizing consumer financing and BNPL tools. The survey shows the importance of consumer experience and omnichannel from the retailer’s perspective.

The data paints a picture of consumer finance as an increasingly critical function in the business, linked to customer experience, revenues, and business growth. With technology investments and expansion a priority, merchants ask themselves – am I remaining competitive enough to support the business and my customers?

 

 

Conclusion

Download the FREE survey to gain insight into retailers’ demand for consumer financing, particularly for lower-priced items.

Find out what retailers need to improve customer experience and revenue and how crucial it is for merchants to provide an omnichannel experience for financing options. In the survey, learn how consumer financing is becoming an integral part of the customer experience, with some retailers creating a unique function for BNPL and consumer financing options.

As technology investments and expansion become a priority for merchants in 2023, they must remain competitive enough to support their businesses and customers. By understanding and addressing these critical findings in our survey, You can see how merchants can leverage the advantages of financing and capitalize on the growth opportunities offered by the rapidly evolving retail financing landscape.