Tag: Kevin Lawrence

4 Key Factors When Selecting a POS Lender for Your Business

Posted on by Kevin Lawrence

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.  

  1.  POS financing approval rates
  2.  Approval amount
  3.  Loan terms & conditions
  4.  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.  

Approval Amount

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.

The Transformative Power of Embedded Lending in Customer Journeys

Posted on by ChargeAfter

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.