As e-commerce continues to boom, businesses have recognized the need to offer their customers seamless and flexible payment options. In recent years, one payment option that has gained immense popularity is consumer financing. Consumer financing for online shopping, including buy now pay later (BNPL) solutions and point-of-sale (POS) financing, allows customers to pay for their purchases in interest-free installments. And the advantages of these services are apparent – they increase average order value, reduce cart abandonment rates, and eliminate the sticker shock that often comes with making a large purchase.
Unlocking big sales with small payments and POS financing
With the BNPL market projected to reach $565.8B by 2026, POS financing is expanding more rapidly than any other category of unsecured lending. According to recent POS financing data, it is set to grow at a CAGR of 20% preceding 2024 in the US alone. McKinsey Global Reports (1) found similar trends internationally.
However, there’s more to this trend than just consumer demand. With an erosion of eligibility for credit among the bulk of the US population, a smaller percentage of applicants are eligible for prime credit. This means financing options like BNPL can help bridge the gap for those who may not qualify for traditional forms of credit. By offering POS financing, merchants can create a more seamless and convenient shopping experience that caters to a wider range of consumers – ultimately leading to increased sales, customer retention, and a much stronger bottom line.
What is consumer financing ?
Consumer financing refers to a program or service offered by businesses to help customers pay for goods and services over a period of time. This is typically done through an application process and allows customers to make payments in small increments over a set period, usually ranging from a few weeks to several years. This form of financing can be achieved through different means, such as buy now pay later solutions, POS financing, installment loans, or a line of credit, each with its unique benefits and usefulness to merchants.
By providing online consumers with more flexible payment options, businesses can increase average order value and give customers the freedom to buy what they want when they want. Overall, consumer financing offers a practical and convenient way for customers to buy their products without financial constraints while unlocking a new opportunity for competitive growth.
Types of Buy Now Pay Later solutions in the US market
As companies adapt to the growing popularity of online shopping, they are eyeing several BNPL solutions and approaches.
- Direct Providers
Direct providers are a popular BNPL solution in the US, offering financing options to consumers at the point of sale. This means that when a customer is completing their purchase, they have the option to choose to pay over time with the help of a direct provider. Direct providers like Affirm, Afterpay, and Klarna are generally responsible for the industry’s rising profile as they make buy now pay later solutions more accessible to consumers.
- Facilitators
Facilitators are established payment companies that enable their merchant partners to offer BNPL solutions to their customers. They act as intermediaries between the merchants and the direct providers, making it easier for merchants to integrate buy now pay later solutions into their checkout process. Facilitators like Mastercard, Shopify, and Stripe are using the rising interest in direct providers’ solutions to capitalize on the market’s growth.
- Retroactive Providers
Retroactive providers offer financing options to consumers after they’ve made purchases on their credit card. These financing providers, largely issuers, offer flexible payment options after purchases have been made. American Express, Chase, and Citi are some of the examples of retroactive providers that offer financing options to their customers.
- Other BNPL Providers & Companies
Both financial institutions and fintech startups are competing for market share in the BNPL space. Some of the top BNPL providers and companies include Affirm, Afterpay, Alliance Data, American Express, Chase, JPMorgan Chase, Klarna, PayPal, Quadpay, Sezzle, Shopify, Splitit, Stripe, TSYS, Visa, and Zip.
- Multi-Lender Single Application Platforms
Finally, the multi-lender single application platform is the latest addition to the BNPL market and by far the solution that makes the most sense for merchants looking for growth in challenging times. Overall, today’s consumers do not have the same tolerance for minimal options as they used to. This is why multi-lender platforms like WeGetFinancing is an ideal solution that redefines payment innovation and forms a perfect merchant process that caters to the evolving consumer.
WeGetFinancing provides a simplified application process that allows consumers to apply to multiple lenders with one application and access multiple instantaneous options. Their credit will never take a hit, and they can consider/compare multiple pre-approved financing options side by side in one seamless effort. This ultimately helps merchants convert more applicants into customers, and creates faster checkouts.
In short, the multi-lender approach improves conversion ratios and ultimately increases average order value than traditional single-lender solutions for its access to multiple lenders and bypassing unnecessary credit inquiries.
Consumer financing for online shopping : what’s the benefit ?
Offering consumer financing solutions such as BNPL or POS financing can bring significant benefits to merchants. From increased conversion rates to improved customer satisfaction, merchants that offer financing are gaining a competitive advantage by offering financial options that resonate with their customer’s needs.
- Increased Conversion Rates
One of the most significant advantages of consumer financing is the increase in conversion rates. Many customers are deterred by high upfront costs and will abandon their shopping carts as a result. By offering consumer financing, merchants can allow customers to break up their purchases into more affordable payments, thus increasing the likelihood of a sale. In fact, businesses that offer consumer financing see an average of a 20-30% increase in conversions.
- Increase in Average Order Value (AOV)
Offering financing options to customers can lead to an increase in average order value. Notably, 76% of online consumers are more likely to follow through with a purchase if a seamless financing plan is offered (source citizensbank.com) Overall, customers who are given the flexibility to make payments over time are more likely to make bigger purchases or purchase more expensive products. Plus, customers can purchase more products or product add-ons if they know they can leverage substantial financing options. Merchants that provide consumer financing and buy now pay later solutions typically see a 30-50% increase in average order value (source CNBC.com).
- Boost in Customer Lifetime Value (CLV)
Customers who express brand loyalty by purchasing repeatedly from the same e-commerce do it not only because the merchant successfully fulfills their needs, but also because they show them they are valued. By meeting your customers in the middle payments-wise, you can build their trust and demonstrate that you value their business. It is no secret that customers who feel appreciated are likely to return, making your Customer Lifetime Value (CLV) increase.
- Reduction in Cart Abandonment
Merchants who feature buy now pay later solutions have seen a decrease in cart abandonment by up to 35% (source mastercard.com). It is not uncommon for online shoppers to abandon their carts because they believe the products are too expensive or that their preferred payment method is not accepted. To counter this, implementing consumer financing options can help your customers overcome financial constraints, resulting in more fulfilled orders.
- Competitive Advantage
Offering consumer financing solutions can put a merchant on par with their competitors. If your competitor offers this option to their customers and you do not, you might be missing out on a sale(s). Conversely, adding BNPL solutions and capabilities to your business will give you a leg up on competitors who don’t offer it. This is particularly relevant to online/e-commerce shopping, where consumers have a never-ending range of options available to them.
The Win-win solution for merchants & customers
In a rapidly evolving market, consumer financing for online shopping has become a critical factor in achieving sustainable growth and staying several steps ahead of the competition. By providing customers with payment options such as POS financing, buy now pay later solutions, or in-house credit lines, online merchants can reduce the financial barriers that often prevent customers from making purchases. Furthermore, it can attract new customers while building loyalty among existing ones.
In summary, consumer financing remains a recommended practice for merchants and online shoppers today – one that has been proven to be beneficial for both sides and in more ways than just one.
Sources:
(1) The 2022 McKinsey global Payments reports, october 2022
