The emergence of new financing options at the moment of purchase is transforming consumer finance. Will these new options see payment service providers further disintermediate traditional banks from their heritage short-term consumer-financing business?
Not long ago, the only financing options available to a consumer at point of sale (POS) were credit cards, overdrafts or bank loans. While the first two options are quick and easy, consumers paid the price for convenience in higher credit terms. And while bank loans offered better terms, the paperwork and time involved were big deterrents.
But consumer credit is undergoing radical changes. Technology and abundant data indicate merchants and financial institutions can now offer loans at the moment of purchase, either online or in stores. FinTechs are front-runners in the POS lending trend, where buyers make a direct agreement with the merchant for partial payment, meaning the loan is not subject to the anti-money laundering laws of banks (and does not require additional legitimation). These FinTechs are putting banks and other traditional consumer financing businesses under pressure.
For consumers, it’s easy to see the appeal of POS financing. It’s instantaneous and digital and can offer greater transparency on the total cost of the purchase. And this alternative form of financing liberates customers from mainstream credit options.
For merchants, the key selling proposition of POS lending is — not surprisingly — fewer abandoned online shopping carts and higher sales. This new form of consumer financing potentially increases conversion rates by offering consumers intuitive, seamless and error-free loan processes and delivers high approval rates for loan applicants.
After already being successful in the online world, POS lenders are increasingly aiming to conquer the offline world by replicating the online lending experience at the real-world checkout. This is being done through means such as direct integration into POS terminals and through mobile apps that can generate a one-time-use virtual credit card number for universal acceptance.