Installment loans are nothing new—consumers have been using them for decades to finance big-ticket purchases like appliances, furniture, and electronics. But fintech companies have brought POS financing to the younger masses with flexible products; indeed, the process is now more seamless than ever and gaining traction. As a merchant, should you jump on the POS-lending bandwagon?
What Is POS Financing?
Point-of-sale financing is a process by which merchants offer customers a way to pay for a product—in-store and online—using a third-party lender. It allows consumers to break purchases into installments, with set interest rates and repayment schedules, while the merchant receives full payment as they would with a credit card. This payment solution was already trending upwards before the pandemic and, like many other emerging retail trends, has only accelerated since COVID-19.
A Growing Industry
The POS lending sector is growing exponentially. Between 2015 and 2019, outstanding balances originating from POS lending solutions more than doubled. The space has gained visibility and acceptance, while the application process continues to improve. Furthermore, the industry is starting to grab market share from credit card companies, snatching 3% during the same period.
Some of the industry’s heavyweights include Affirm (which has partnered with the likes of Peloton), Afterpay, Sezzle, and Klarna. They all work on the same premise, namely buy now, pay later. For an eCommerce purchase, the typical process looks like this:
- Customers add an item to their cart.
- They choose the POS lender option during checkout.
- Customers log in (or create an account) and wait to be approved.
- Payment is broken up into chunks (usually four) and is payable over a given period.
Should Your Business Offer POS Financing?
POS financing solutions have their pros and cons, and they aren’t for every merchant.
Benefits include the following:
- Higher sales volumes
- Higher conversion rates
- Higher-order values
- Lower fees
In terms of disadvantages, there is always the risk of a customer being declined at the checkout. Likewise, there are setup and training costs associated with any POS financing solution.
Here are a few additional considerations:
Cost. Before implementing a solution, do some research on the costs. For example, you’ll have to train your employees and integrate the platform into your eCommerce channels. Also, there are ongoing costs associated with partnering with a POS lender.
User-friendliness. Whichever offering you choose, the entire lending process needs to be seamless. A cumbersome loan application and checkout process will frustrate customers and be unlikely to add value to your business.
Loan terms. Team up with a provider that provides the most favorable terms and pairs with your products or services. Interest rates and payment late fees vary between lenders, with some offering interest rates as high as 30% and fees for late payments.
If you have partnered with a POS lender or are thinking about it, consider integrating the offering throughout your site. According to a McKinsey report, merchants that integrate a financing option throughout their website and not just at checkout saw a 3.2% increase in conversion rates. The same report notes that 75% of consumers who decide to use POS financing for big-ticket products make the decision to do so well before checkout.
Partnering with a POS lender is worth considering, especially as consumer awareness of POS financing continues to increase. Although there are some drawbacks, POS financing is here to stay and is poised to keep growing. If you’ve got any questions about integrating POS financing into your business, get in touch with a Sekure payments professional today, and they’ll be happy to guide you through the process.