Tips To Decrease Cart Abandonment At Checkout

Decrease Cart Abandonment – There are many things that merchants can do to reduce friction/cart abandonment at checkout. Read on to know a few methods.

In the days when brick and mortar was everything, no one worried about how to decrease cart abandonment. All it took was a committed salesperson to ask if a customer was ready to check out, take their cash or card, and process the transaction before the buyer had a chance to change their mind.

That doesn’t work in e-commerce. Your customers are essentially on their own to add products to their carts and make the commitment to click “Checkout.”

That may be part of why the average cart abandonment rate today is 69.8%. You read that right — more than two out of every three shoppers leave the checkout page before making a purchase.

You can retain many of these customers just by simplifying your checkout page. You’d be amazed how a few tweaks can make everything flow more smoothly, appeasing the wary customer and guiding them to purchase — almost as if you were holding their hand.

Simplify Your Checkout

When was the last time you looked closely at your checkout page? Take a moment and create a fake order, then look at it as a customer might. Ask yourself:

  1. ‌How many steps does it take to check out?
  2. ‌How many buttons does the customer have to click?
  3. ‌How many separate fields are there for add-ons, financing, bonus activation, etc.?

‌The more clicking a customer has to do before making a purchase, the more likely they are to abandon. You can significantly reduce friction at checkout by getting rid of all those extra buttons — and there are probably more of those than you think

Consider retail giant Amazon. It had so much success simplifying its checkout that in 2017, it had to refund $70 million for purchases children made without permission.

Amazon is still known for its ease of ordering. Even if you don’t use the Buy Now one-click feature, you can still have your product on its way in seconds. How close can you get to that level of simplicity?

Reduce Your Load Time

Bounce rates soar whenever a customer has to wait more than two or three seconds. You want your e-commerce site to be at the low end of that scale.

Simplifying your checkout page is one of the easiest ways to decrease load time. Use a one-page checkout if possible. This might mean minimizing the amount of customer data you ask for, and that’s okay. You’ll still retain more customers because you’ve reduced friction at the cart.

Other effective redesign techniques include:

  1. ‌Minimizing image sizes
  2. ‌Using social sharing buttons instead of plugins
  3. ‌Limiting or eliminating redirects to other pages

‌These simple technical interventions can decrease cart abandonment. If they’re not enough, ask your web design team about coding adjustments.

Keep Customers on the Cart Page

Eliminating redirects does more than just increase page speed — it also keeps your customers in their carts.  

Imagine having to leave a physical store to visit an ATM. If you didn’t need your purchases urgently, you might be tempted to just go home. But this isn’t just a brick-and-mortar problem.

If you have third-party Buy Now, Pay Later options or co-branded payment cards that take consumers off your site, you’re essentially sending them to an ATM on the other side of the mall. 

When a shopper clicks on a financing link, they suddenly have a new website to navigate and multiple fields to fill out. Plus, they stop seeing the products they were excited about purchasing. The motivation is out of sight and sometimes out of mind, so it’s easy to click away.

You can break this cycle by keeping all of your financing options on the same page. And the simpler those options are, the better. 

Simplify Financing Options

According to Forrester, offering financing to customers can increase order value by 15% and boost incremental sales by 17%. And when you add pre-approved financing to the mix, you can increase customer conversion by 44%.

The key is to make the application process simple enough that you don’t scare people away. Applications for consumer financing can be unnecessarily lengthy, reminding people of buying a car or taking out a loan.

Consumer financing should be much simpler than either of those things. With a company like Skeps, you can add a single, consumer-friendly application that qualifies buyers for multiple financing options — from installment payments to co-branded cards.

A simple application with multiple options reduces the frustration of financing for you and your customers. Shoppers are much less likely to get all the way to checkout only to find that a third-party lender has declined their financing application.

Skeps allows you to offer financing from several different lenders all at once. If one option doesn’t work for a consumer, another might. The shopper doesn’t have to fill out a second application to find out. 

Display Offers Sooner

Shoppers often get all the way to the checkout page without realizing that financing options are available. Seeing one can be a relief, especially for a big-ticket purchase, but it can also be jarring.

That’s why Skeps offers instant financing to simplify this process and decrease cart abandonment. It lets you display financing offers when shoppers log in. This removes a barrier to purchase immediately for some buyers and decreases cart abandonment in advance. The customer goes all the way to purchase with their new payment plan instead of adding an item to their cart and then leaving it behind because they can’t afford it.

Additionally, displaying finance offers at login makes checkout easier and quicker. The buyer doesn’t have to stop to apply for financing or choose an offer — they’ve already done it. They may even spend more because they can finance.

The Power of a Simple Checkout

Convenience is a powerful motivator, especially in the world of online shopping. Your shoppers do enough mental work to get themselves and their shopping carts to the checkout page. 

The easier that page is to navigate, the more you can decrease cart abandonment. Think of simplification and easy financing options as the electronic version of a helpful store associate, guiding a customer to checkout. 

You don’t have to choose between convenience and multiple financing options anymore. With Skeps’ intuitive platform, you can have both — with a side of top-notch customer satisfaction.

Customer Experience: How Companies Can Play to Win

Consistent customer experience lets users know what to expect from your brand and creates feeling of trust.

Trust is earned, not given — it’s an old adage, but it sticks around for a reason. Most of us have encountered a person or an experience that didn’t feel right. It can happen with companies, too — in fact, one report estimated that lackluster customer service costs businesses more than $75 billion per year. According to the analysis, 67% of customers have become “serial switchers,” meaning that they’re willing to move brands due to poor customer experience.

These stark numbers make the case for getting customer experience right. In a day and age of serial switchers, getting it wrong for customers will likely cost you.

The Customer Experience Opportunity

According to Forrester, there’s extensive customer experience (CX) data to support the importance of focusing on how customers feel. The firm reports that when a customer feels appreciated: ‌

  1. 76% will keep doing business with the company that makes them feel that way.
  2. ‌80% may spend more with the company.
  3. ‌87% will recommend the business to their inner circle of friends and family.

‌‌This is the flip side of getting it wrong for customers. Getting it right can mean driving repeat purchases as customers stay in spades.

Building Loyalty: The ABCs of Earning Customer Trust

When customers show up at your front door — virtual or otherwise — they bring their whole selves with them. That means you’re interacting with the entire person and their past experiences, belief systems, values, goals, needs, wants, and so on. The leadership that you bring to the equation, or don’t, meets that customer at your front door.

To better understand how leaders can build trust, Harvard Business Review analyzed the 360 assessments of 87,000 business leaders. They identified three key traits that must be in place for trust to develop –

Positive relationships

Serving well means keeping your finger on the needs of those you serve. Know what they’re thinking about, keep your desire for results in check enough to care deeply, make it personal, and resolve conflict effectively.

good judgement/expertise

People tend to care about seeing a strong example set and want to see a measured, responsible approach to solving problems.  

consistency

This is where words meet action. In order to place trust in a leader or company, people must see you do what you’ve promised to do. Without impeccable focus and follow-through, a leader or brand can fall out of favor quickly or fail to gain traction in the first place.

Customer Experience Staples

What does customer experience mean? Let’s go over the basics and explore a key way of differentiating between types of CX, depending on the nature of your product or service.

Touch Points of Customer Experience

Your customer’s experience spans every aspect of your brand, including but not limited to: 

  1. Logo
  2. ‌Store(s), if applicable
  3. ‌Marketing, including tag line, tone of voice, and call to action
  4. ‌Website, including user experience and speed/reliability
  5. ‌Support options and accessibility
  6. ‌Pricing
  7. ‌Payment and financing options
  8. ‌Return policies, including ease of making returns
  9. ‌Shipping/delivery speed 
  10. ‌Follow-up on current transactions
  11. ‌New solicitations, including text and email marketing campaigns

‌Any one of these factors can turn your customers on or off, so it pays to sweat every detail.

Engaging Your Customers: Smooth or Sticky? 

The American Marketing Association (AMA) points to two types of customer experiences.

There are “smooth” customer journeys with a simple, fuss-free transaction or experience. In other sectors, the hope is for a “sticky” experience.

You might want a smooth customer experience with your bank, insurance company, or auto service team. Those transactions serve areas of your life where you need and want a reliable, easy outcome every time.

In other areas — such as fitness, entertainment, and food — variety is often your bigger concern, and companies that serve that need will deliver a better CX.

Beyond the Basics: The Road Ahead for Customer Experience

What are service-oriented leaders working on in 2021? Insights firm Gartner checked in with service executives worldwide to find out. Here’s what they found:

Your Transaction Ecosystem Matters

Gartner found that offering customers an array of ways to seek service doesn’t help — and only makes transactions more costly.

Being Proactive Is Key

Although most customers prioritize reactive service, research shows that proactive service is where pastures are greener for both the company and the consumer. Companies spend less, customers are happier, and the product is better perceived when the buyer is on the receiving end of proactive service.

A survey of 6,000 customers revealed that just 13% experienced outreach by a company that they’d consider doing business with.

Customer Data Has Value

The team at Gartner found that companies struggle to digest and utilize the voice of the customer (VoC) data. If used effectively, VoC research can tell you how many customers you’re retaining, whether you’re creating brand loyalty, and what you need to do to improve your products or services.

You can collect VoC data in many forms. If you speak with customers, you may hear about transactions that went awry. You’ll see user reviews on your site, comments on your social media profiles, detailed emails, or signs of frustrating user experience via your site performance metrics.

Enter Reputation Experience Management

As customer experience evolves to meet the demands of consumers, many companies are finding that they need to work from the outside in — starting with the customer, who has the power to submit online user reviews and social media comments — and build an internal strategy from there.

This seismic shift in how companies view customer experience has led to a new field within the industry called reputation experience management (RXM). According to an analysis by Forbes, “The brands that embrace a new and improved way of managing their reputation and design their organizations around it could be the winners in the feedback economy.”

CX Matters, in Whatever Form It Takes

Although few companies can claim to have customer experience figured out, the numbers tell us how much it matters.

The Skeps platform enables merchants to implement multiple loan options from various lenders at the point of sale. To learn how we can help you provide a seamless customer experience and land more sales, visit us online.

The Top FinTech Partnerships In 2020

FinTech partnerships have the opportunity to explore the transition to digital transactions and gain market share.

The partnerships in the FinTech industry in 2020 have availed themselves the opportunity of exploring the rapid transition to digital transactions and new markets, to consolidate their position in the value chain and further gain market share.

The FinTech ecosystem has seen some exciting disruptive forces create havoc over the last five years. COVID season, in particular, has pushed organizations out of their comfort zones from a “winner take all” attitude towards collaboration to witness tremendous benefits for both sides. The trend goes back to its advent in early 2019, and since then, it has been completely changing the dynamics of the financial services industry.

The size of the market

The uncertain times through 2020, as we all know it, can be seen as both a threat and an opportunity where investors have focussed on late-stage maturity trends. A healthy flow of 1,221 FinTech deals between January and June amounted to $25.6bn inclusive of venture capital investment and mergers & acquisitions (M&As) towards digital-native FinTech solutions transforming banks by and large. Simple customer patterns such as the transition to online transactions, high-speed and high-fidelity cloud-based solutions, and high-powered mobile devices have made the customer journey a lot leaner than it used to be with traditional banks. The general trends of M&As have been across the payments, lending, and banking space, primarily in the interest of young organizations exploring an added footprint within banking.

The partnerships in the FinTech industry in 2020 have availed themselves the opportunity of exploring the rapid transition to digital transactions and new markets, to consolidate their position in the value chain and further gain market share.

Digital transformation calls for enhanced capabilities

SMB lending disruptor Kabbage recently forayed into banking with a debut of its checking account interconnected to a range of digital banking services including, eWallets and bill payment services. American Express acquired FinTech Kabbage at a rumored figure of $850 million to empower small businesses with technology solutions to help manage their cash flow and focus on growing their businesses.

In a race to substitute the card-based business model running out of steam, the acquisition talks noticed across the COVID season was Visa potentially acquiring Plaid for a whopping $5.3 billion. Although this is currently on hold due to antitrust regulatory concerns, it is sure to resurface. In a similar context, Mastercard has successfully posted the acquisition of Finicity at a much lower figure of $825 million.

The quest for new market opportunities

Competitor acquisition has also been on-the-high during 2020 for obvious reasons. Although the deals are not cheap, the strategic economic impact is high. Take the example of Worldline acquiring French competitor Ingencio for $8.6 billion to increase market reach in the payments space. To consolidate its position on other sides of Europe and enable more local payments (and strengthen the partnership with Czech Republic-based Komercni Banka), Worldline has also acquired a majority stake in GoPay, a well-known payment gateway in Eastern Europe.

On the other extreme, with technology companies offering Banking as a Service, Stripe stands out with its recent partnerships with Shopify and Evolve Bank & Trust to provide business accounts designed for merchants. Stripe also continues to invest heavily in its treasury infrastructure to strengthen its new partnership with Goldman Sachs. Similarly, hardcore technology-backed M&A was witnessed in the Southeast Asian market where cloud service company Infor partnered with DBS Bank in Singapore. The partnership emerges as a peculiar one where a FinTech company will augment its digital-first solution with the trade-financing capabilities offered by a bank.

The bottom line

Statistics help visualize $14 billion worth of deals in Q1 of 2020 and subsequently an $11.7 billion worth of Fintech deals down by 43% and 21% year-on-year in the same quarter. Overall, the negative impact of coronavirus outbreak comes coupled with accelerated digital trends. Increased demand for digital transformations at banks and financial services organizations has led to a surge in cashless payments. While on the other hand, few FinTech services have forced the traditional organizations to double down on FinTech investments.

Holiday Season Reality: What has changed this year?

BNPL FinTechs are well-positioned to enable a growing portion of consumer spending, during the holiday season.

BNPL FinTechs are very well-positioned to enable a growing portion of consumer spending, especially during the holiday season (Black Friday and Cyber Monday).

The biggest shopping carnival of the year—Black Friday to Cyber Monday—is around the corner. Although the COVID-19 pandemic has transformed many aspects of life, however, consumers and retailers are all geared up for the upcoming holiday season. Consumers have moved to online channels, while retailers are working on enhancing their digital capabilities. To put it precisely, we are all in store for a very different holiday shopping season. Before we dive deep into the details of what has and what will change this year, let us talk about some numbers that highlight a massive change.  

So, a Deloitte report shows that despite the massive unemployment rate in the U.S. and the worst economic slump since The Great Depression, holiday retail sales are still expected to increase, between a modest 1 percent and 1.5 percent. Early sales projections between November 2020 and January 2021 are expected to be around $1.15 billion. This year, we know customers want to avoid crowds, and therefore digital will play an even more crucial role in 2020’s holiday shopping landscape. A record number of shoppers, around 60 percent1— plan to shop online. Deloitte forecasts reveal that e-commerce sales are all set to grow by 25 percent to 35 percent, year over year, during the 2020–2021 holiday season — a leap from the 14.7 percent uptick in online holiday shopping from 2018 to 2019. This season, we can expect e-commerce holiday sales to generate between $182 and $196 million.  

All these estimates, coupled with more reasons, have prompted retailers to kick off sales as early as October. Let us see what these reasons might be.

Retailers kicked off sales as early as October

If you look at the data of Cyber Monday from 2019, the sales achieved a record $9.4 billion2 vs. $7.9 billion in 2018, and, in the same period, Black Friday witnessed sales of $7.4 billion vs. $6.2 billion, respectively. That might have prompted retailers to kick off sales as early as October3 in an effort to drive incremental sales volume leading into the holiday season. While retailers have undergone numerous preparations for the traditional holiday shopping season, the disruption done by the pandemic has put things into overdrive. As consumers begin to make their holiday wish lists, retailers have already planned changes to ensure they can deliver for the busy holiday shopping season.  

Imports reached an all-time high as retailers stocked up on inventory well ahead of schedule. We have also noticed that some have termed this holiday season shipaggedon. It seems retailers have planned for an extended shopping season. Around 69 percent of retail respondents surveyed by the National Retail Federation expected consumers to start their shopping in October this holiday season, and they were ready to meet this demand with seasonal inventory and promotions.

Retailers planning for early start to the holiday season

Also, for many retailers, this holiday season is vital as they are relying on Q4 to recoup losses and maintain 2020 sales targets. Also, their holiday season’s performance will serve as a litmus test for digital experiences moving forward. As 47% of global consumers4 are interested in shopping online for the holidays this year compared to last year, getting ahead of the curve becomes even more crucial.  

Aside from all this, in a global economic downturn, it will be interesting to observe how retailers live up to consumers’ expectations, especially as they shift from offline to online shopping.  

Retailers need to enhance the customer experience

As e-commerce demand and competition continue to rise, retailers need to be on top of customer experience to lure consumers to their stores for their holiday shopping. From seamless payment methods to the availability and delivery of stock, everything needs to be on point. In a scenario where holiday spending is expected to fall, given the dampened mood caused by the pandemic and resulting recession and job losses, retailers need to look into the source of funds that will be used to pay for holiday spending and open multiple payment options for the consumers.  

In terms of overall payments, the top positions were occupied by debit cards (35.7 percent) and credit cards (31.8 percent).

Funds that will be used to pay for holiday spending

“Consumer demand right now is for responsible credit options,” said PayPal’s Executive VP of Global Sales, Peggy Alford. “For them, buy now pay later (BNPL) [is] more than just credit – it’s the flexibility of payment. In these economically uncertain times, the desire for many people — especially our young folks — is to not go into debt, or risk it, but they do need spending flexibility.”  

For example, PayPal data says, 1 in 3 retailers are implementing cashless options in their stores, and retailers need to oblige and offer various payment options for a seamless experience. Used in more than 70% of all consumer transactions5 globally, local cards, e-wallets, bank transfers, and cash-based digital payments are the dominant payment methods. But, in a post-COVID scenario where consumers are experiencing a money crunch, retailers that enable payment flexibility will prepare themselves for lasting success, ensuring they are on the right side of this industry transformation.  

This holiday season seems to be serving as an e-commerce strategy template for years to follow. Retail is at a crossroads, and the impacts in the next few months will help chart the path for the future. The next few months will accelerate a digital arms race for retailers looking to develop the best possible e-commerce experiences for consumers.  

FinTechs well-positioned to drive holiday sales in 2020

While the pandemic is upending the status quo for many consumers, retailers, and lenders alike, one segment of FinTechs continues to witness growth amidst market uncertainty. As consumers and retailers are rapidly adopting BNPL financing options, it could be critical to sales this holiday season, for it seems to help offset some of the economic impacts of the pandemic.  

BNPL FinTechs are very well-positioned to enable a growing portion of consumer spending, especially during the holiday season (Black Friday and Cyber Monday). Consumers who are new to credit are adopting BNPL services. After raising substantial funding in 2020, BNPL FinTechs can give consumers the gift of greater financial health post-pandemic.  

This year, BNPL FinTechs fared well, and top players raised substantial capital to respond to growing consumer demand. Meanwhile, other FinTech lenders pulled back on originations and all reduced workforce to preserve operating capital. Also, reports show improved customer conversion rates and higher average order values for retailers offering installment payment options. Some merchants are witnessing a 20% lift in conversion rates and a 60% lift in average order values6. Given the pessimistic outlook for 2020 retail sales, these statistics seem very encouraging.  

Having released a new BNPL product recently, PayPal says that more flexible payment plans are also going to be critical to securing sales during a period of economic uncertainty. It also says 45 percent of merchants who already offer BNPL financing options could see holiday sales grow by at least 5 percent and that 42 percent of retailers say the additional payment option has combated shopping cart abandonment.

1 NRF: Holiday 2020 shopping starts now 
2 Statista: Thanksgiving weekend e-commerce sales 
3 CNBC: Black friday is over: Here’s why retailers are touting weeks of deals 
4 PPRO: Payment Service Providers 
5 Salesforce: 2020 retail holiday guide 
6 Fiserv: Retailers meet customer demand buy now pay later installment 

POS Financing Competition Is Growing Fast

Fintechs are the best positioned to win the POS financing competition, thanks to a sharp rise in adoption from 2015 to 2019.

Fintechs are the best positioned to win the POS financing competition, thanks to a sharp rise in adoption from 2015 to 2019.

Not long ago, the only financing options available to a consumer at the point of sale (POS) were credit cards or bank loans. While these options are easy-to-use, consumers paid the price for convenience, and the paperwork and time were the deterrents for banks. However, the new wave of point-of-sale financing or POS financing is transforming consumer finance. Technology and data indicate merchants and financial institutions can now offer loans at the moment of sale, both online and offline.

The existing scenario of the POS financing market

POS financing is a win-win for consumers seeking transparent credit options, and merchants capitalizing on a broader customer base and opportunity to boost sales. For consumers, it is instantaneous, seamless, and offers greater transparency on the total cost of the purchase. Also, this alternative form of financing liberates customers from mainstream credit options. For merchants, the vital selling proposition of POS financing is fewer abandoned online shopping carts leading to higher sales.

Filene Research Institute1 estimates the size of the global POS finance market at $6 trillion, and the U.S. market at $391 billion with healthcare, electronics, and home furnishings products as the most popular consumer categories. POS financing is growing 20 percent a year in the U.S. with similar growth rates found in Europe, Australia, and Asia2. As compared to all other financing products, this category is growing at a faster pace and twice as fast as credit cards. In the U.S., outstanding balances on POS installment loans are projected to reach $162 billion by 20213. Today, installment loans stand for only 3.5 percent of all U.S. consumer credit4. It means POS financing is a blue-sky opportunity for players out there be it, financial technology firms or fintechs, banks, merchants, credit card issuers, and even manufacturers.

Fintechs, the best positioned to leverage POS financing

Millennials are drawn to POS financing

Fintech is a buzzword in the financial circles, and they bring in a fresh take on problems faced by the consumers, and as seen through the lens of technology. With a massive millennial customer base and an impressive suite of digital offerings, they are the best positioned to leverage POS financing.

Millennials are drawn to POS financing due to their aversion to high-interest rates levied on credit cards. In contrast, POS financing loans have a transparent and fixed tenure of repayment with interest rates lower than those on credit cards. Fintechs have gained traction by working on consumers’ pain points like lack of understanding as to how the annual percentage rate works, which they address by offering transparent and fixed credit terms. Fintechs ensure a paperless and digital-first approach to consumer onboarding. They have built platform capabilities to leverage nontraditional data sets for credit scoring apart from the usage of traditional credit bureau data. Their digital-first approach ensures a frictionless purchase experience.

Fintech adoption continues to grow globally

All this has led to strong growth in fintech adoption. As per the EY Global Fintech Adoption Index5, global fintech adoption has reached 64 percent, and 68 percent of consumers consider a non-financial services company for financial services. Markets have seen a sharp rise in adoption from 2015 to 2019, which reflects the availability of fintech services offered by banks, insurers. The index also recorded attractive rates and fees as the top reason for consumers to use a fintech firm.

Market201520172019
Australia13%37%58%
U.K.14%42%71%
U.S.17%33%46%
Total Average14.6%37.3%58.3%
Comparison of FinTech adoption in top markets from 2015 to 2019

The top POS financing players6 in Australia include Afterpay, with 4.6 million customers, and Zip with 1.3 million. OpenPay works in specific categories such as dental, healthcare, and automotive. Splitit, with its focus on online sales, entered the Australian market in 2019, and Latitude has announced that it will be launching a product to compete directly with these new entrants.

Europe has traditionally dominated in this space and is home to Klarna, which is leading the way with their checkout solutions benefitting both merchants and the end consumer. POS financing companies found fertile ground for disruption in Sweden, thanks to its high rate of adoption, accessible credit-scoring data, and efficient recoveries.

According to a report, 70 percent of North American consumers used a fintech app in 20197, which means consumers are embracing fintech in the U.S. With Affirm partnering over 6000 merchants and Sezzle with more than 17000 retail partners, the adoption rate has grown faster than anticipated. You can read in detail about the top disruptive models from the POS financing industry.

Banks need to take note

With the rise of POS financing, and fintechs ruling this space, they have been an integral part of driving down the cost of financial intermediation, eating away the profit margins of the lenders. A recent analysis by TransUnion and DBRS indicates that fintechs now have a larger share of personal loan balances than banks – fintechs are accountable for 40 percent, and banks for below 30 percent8. While this may be unsettling for banks and other traditional financing institutions, it also opens many avenues. Banks are being compelled to alter their primitive business practices to offer a broader spectrum of services. These are going to allow them to compete effectively with innovative fintech startups.

Though nascent, bank-fintech partnerships are on the rise

Banks still are the chief lenders around the globe, but what they do not have is the technology to bring their loan programs to the point of sale of the retailers. Bank-fintech partnerships allow a bank to be at the point-of-sale by utilizing fintechs as technology enablers between their funds and the systems of the retailers.

Banks are realizing that fintechs pose less as a threat and more as a potential end-to-end solution.

– In 2018, Mercantille Bank of Michigan joined forces with Orlando-based fintech startup Abe.ai to improve the financial health of the customers and drive higher engagement.

– In 2020, Deutsche Bank announced an investment in Germany fintech Traxpay, a company that will integrate supply chain financing technologies and solutions within the offerings of Deutsche Bank.

– The partnership between DBS Bank and business cloud technology company Infor will facilitate trade financing to corporates within the Nexus network.

– Banks, such as Regions Financial Corp, SunTrust, and Fifth Third Bancorp, have all benefited from fintech GreenSky, to become significant players in the POS financing space. GreenSky9 has funded more than $12 billion loans – helping banks reach over 1.7 million new customers.

It is time for banks to pick a side when it comes to fintech. Banks can either continue to see fintechs as a threat or take the smarter ground and create opportunities out of collaborations. With POS financing, this decision needs to come quickly. Only 52 percent of banks have stated that lending and credit are significant areas of focus to their fintech partnership strategies, according to a Cornerstone Advisors 2019 study.

To shift their loan programs into the arms of a retailer’s POS with a seamless user experience that shoppers today expect, they need to turn to fintechs. Banks that secure these partnerships will be ahead of the game in terms of POS consumer financing.

Trends to watch out for

POS to cater to smaller-ticket purchases

Initially, POS loans mostly targeted bigger-ticket purchases. Today, however, newer entrants, such as Afterpay, Klarna, and Sezzle, are targeting smaller purchases more directly. Consumers with low-ticket sizes ($200 to $300) are shifting to four- to six-week (shorter-tenure) POS financing options. These smaller-ticket loans are growing at rates exceeding 40 to 50 percent. Additionally, you can see a lot of premium merchants offering loans at 0 percent APRs from POS financing providers. Zero percent interest, combined with a frictionless experience, has started attracting prime customers – 55 percent of origination volume from the prime customers (customers with credit scores above 680), a 2019 data shows10.

Tech-enabled, in-house options to enable more control

It is challenging to offer credit without a third-party. Still, a growing number of retailers choose cloud-based lending technology for POS financing. This option offers several advantages, including:
– Client-data security. Client data is held between your business and its customers, and you can cater to clients who demand complete confidentiality. Additionally, you can avoid the risk of customers getting poached by competitors.
– Higher conversion rates during checkout. Customers go through a simple checkout without submitting additional credit application forms to a third-party lender leading to an increase in the checkouts.
– Savings on transaction fees (can be as high as 15 percent) payable to a third-party lender.

Integration of POS financing into the pre-purchase phase

The integration of POS financing into the pre-purchase phase will leave footprints across a broad spectrum of industries, health, education, automobile, etc. Around 75 percent11 of consumers who finance big-ticket purchases decide to do so early in the purchase journey before the actual purchase. Embedding their offerings early in a consumer’s purchase journey increases the likelihood of consumer adoption. Also, the integration of financing offers throughout the consumer journey increases the conversion rate by two to three times, as compared to integration at checkout.

1LendIt Fintech: Point-of-Sale Financing Poised as a Leading High-Growth Offering from Banks and Fintechs
2LendIt Fintech: Point-of-Sale Financing Poised as a Leading High-Growth Offering from Banks and Fintechs
3
McKinsey & Co.: US lending at point of sale: The next frontier of growth
4LendIt Fintech: Point-of-Sale Financing Poised as a Leading High-Growth Offering from Banks and Fintechs
5The Initiatives Group: Buy Now, Pay Later – New? Old? Better?
6EY Global Fintech Adoption Index
7FinTechs Continue to Drive Personal Loan Growth
8Daily Forex Report: GreenSky is Winning with Customers and Businesses
9McKinsey & Co.: US lending at point of sale: The next frontier of growth
10McKinsey Digital Commerce Benchmark

Scanning The POS Financing Industry: Top Disruptive Models

In continuation of the previous article, this article talks about the POS financing industry and the different models that exist.

In continuation of the previous article, this article talks about the POS financing industry and the different models that exist.

The next time when you shop, retailers may offer a new way to pay. Don’t be surprised to see an easy loan, line of credit, or a lease as your options! Instead of using cash or a card at checkout, the retailer might ask you to provide some personal information, sorting out your financing then and there. Wouldn’t you want to know what changes have made this possible? Let us take you through the story. 

POS financing industry – New story of an old solution

POS financing that enables consumers to break payments up into installments surged back into popularity in the years since the recession after fading with the advent of credit cards.

What made it come back? 

Firstly, there was a demand for it from consumers who wanted more flexibility than traditional credit purchases allowed. Secondly, Millennials became a part of the consumer credit picture and started adopting POS financing solutions as a viable alternative to credit cards. The jump in point-of-sale financing came as credit card debt declined. As point-of-sale credit went mainstream, lenders started to gain a brighter spotlight, often in the form of investments and partnerships that showed acknowledgment of the model from traditional credit card companies. 

Now you may ask – If the POS financing industry is so popular, then who is ruling this space and what are the options available. That is a valid question. Let us answer that. With its growing popularity and demand, the POS financing space is seeing a wave of fintech companies emerge in the past few years. These companies have partnered with thousands of popular retailers, giving them access to millions of shoppers. 

The fintech innovators have recognized that merchants and consumers want options, and these options may depend on the type of purchase, geographic region, and consumer demographics. Traditional players exploring the POS financing option have a limited period to enter the market and grow. In a couple of years, they either will be unable to compete, because most retailers will already have financing partners, or will need to invest heavily to get into the market.

Scanning the POS financing industry

Firms moving to POS financing range from mainstream banks to small and large retailers, and from credit card payments companies to e-commerce players. To frame out the POS finance landscape, we need to set out examples of a few disruptive models that demonstrate the range of possibilities in this space.

Installment loan platforms

POS financing industry - Installment Loans

Loans that are repaid with regularly scheduled payments or installments fall under installment loans. Companies like Affirm, Klarna, Afterpay, and Sezzle offer installment loans to consumers on specific purchases at selected retailers. Over time it has seen significant uptake by customers who are looking for a credit alternative to their credit cards. 

The process of getting this loan is simple. Customers browse various stores at these websites, choose Affirm, Klarna, Afterpay, or Sezzle at checkout, and pay in monthly installments. Some companies charge interest between 10 percent and 30 percent, and some offer interest-free loans. Also, a fee is applicable in case of late repayment. 

Affirm, a San Francisco-based-company has a partnership with over 6000 merchants and serves around 4.5 million consumers. Recently, Affirm entered a deal with Shopify to gain access to about 1.2 million sellers in America. Affirm customers are online and offline shoppers looking for simple fixed-payment loans for financing purchases. These loans come with a three-, six-, and twelve-month plan with an interest rate varying from 10-30 percent. 

You might have heard about Snoop Dogg investing in a fintech unicorn – that is Klarna, a Sweden-based company that offers financing solutions. The first one is installment – it allows customers to split their purchase into four equal payments without costing them anything extra. Second is financing – this is for larger purchases that customers want to pay for over a long period ranging from 3-36-month plans. And the third one is the ‘Pay in 30 days plan’ that allows consumers to try before they buy, for no extra fee. The merchant receives payment upfront, leaving all the risk to Klarna. With over 60 million customers and 190,000 merchants, Klarna has two kinds of customers – E-commerce merchants looking to enhance their website payment options and consumers looking for access to credit when purchasing products online. 

Melbourne-based Afterpay allows online and offline shoppers to make purchases and pay for them over four equal fortnightly installments. The only time a customer pays an additional amount is if there is a late payment – it charges a flat $10 late fee per payment and a further late fee of $7 if the payment is not made within 7 days. With its footprints in Australia, New Zealand, the U.S., and the U.K., Afterpay is offered by more than 48,000 retailers and used by 8.4 million customers. 

Then there is Sezzle from Minnesota that allows customers to pay for the order through 4 small installment payments, spread over six weeks, rather than paying the full amount at once. Sezzle does not charge interest on these payments. With 17,000 retail partners, Sezzle increases its merchants’ sales and shoppers’ purchasing power. Once you are ready to check out, you can select Sezzle as a payment method. Then, you will be prompted to create an account with Sezzle and complete your purchase with as little as 25 percent of the total amount. The only fees you might encounter are failed payment fees or rescheduled payment fees.

Multi-lender Platforms

POS financing industry - Multi-lender Platforms

Lenders and banks can lend in online ecosystems that bring multiple lenders to merchants. This avenue offers consumer access with greater control over underwriting. For retailers, it offers higher approval rates with limited integration, and for the end customers, it opens multiple loan options. 

Vyze, Jifiti, and ChargeAfter do that. 

These companies neither pick between lines of credit and installment payments nor choose a single target demographic range to serve. Rather, they take all the parts of the puzzle and integrate them into single marketplace. Let us see how these companies are so similar and yet so different from each other. 

Vyze is an Austin-based platform that connects merchants with multiple lenders, allowing them to offer their customers a wide range of credit options online and in-store. For merchants, it offers higher approval rates, and for lenders, it increases their funds disbursing capacity. While setting up a merchant, Vyze works with them to choose the best lenders for their program and then, based on the customer demographic a customer applies for financing or is offered financing. The customer is sent through Vyze’s system and passes through all the lenders and receives an offer from one of them. All this happens in a matter of few seconds. 

Vyze is used in 2,000-plus stores in the U.S., and NordicTrack, The Home Depot, and Miracle Ear are among its business partners. To complement its existing card and ACH-based solutions, Mastercard acquired Vyze in 2019 to provide shoppers with additional payment flexibility at the exact moment of purchase. 

Jifiti, an emerging fintech company with offices in Columbus, Ohio, and Israel offers an end-to-end solution that works with any existing POS or e-commerce system. It enables banks and lenders, via a single integration to launch a fully branded POS financing solution for any merchant without further integration resources. With its virtual card technology, it is already being used by retail brands and banks across Europe and the U.S., both online and in-store. 

Chargeafter, founded in 2017, is a California-based startup that works on a network of lenders and financing partners where customer data is put through a waterfall approach to find the best financing or credit product for the consumer. In a waterfall approach, after a pos financing application is submitted, it is checked against the prime lenders for approval and if declined it moves down to near-prime options for approval. If declined, the application is then shared with the sub-prime lenders for approval. The entire process takes place on the merchant’s website without any redirects and takes only seconds. 

Financing platforms

POS financing industry - Financing Platforms

Financing platforms act as a middleman that connects consumer borrowers with banks, collecting a fee in the process. These platforms rely on merchants to bring in loan volume by pitching financing at the point-of-sale. 

Atlanta-based Greensky, a financing platform for service providers, namely contractors and home improvement, has been at the forefront of this strategy. The platform lets home improvement companies offer instant loans and lines of credit to their customers. These loans help customers break the purchase into bite-sized payments over 12 months. Basically, it is a win-win for all the stakeholders. Banks score huge loan volume. Merchants get the ability to offer affordable payment plans. Consumers get the flexibility to pay for a purchase over time, potentially without incurring any interest. 

Greensky, which went public, raising $874M on the NASDAQ with a $4.3B valuation, today has partnerships with over 18000 merchants in the U.S.

Line of credit

A line of credit is a flexible loan that offers a limited amount of funds – funds that can be accessed as needed, and you need to repay over a prespecified period. 

PayPal Credit is a reusable credit line, which you can use at most online retailers that accept PayPal as a payment option. You get six months interest-free loans on purchases of $99+ every time you shop. Unlike Visa and traditional credit cards, Paypal Credit cannot be used in brick-and-mortar stores, and you won’t get a physical piece of plastic either. PayPal Credit is 100% online-based. The process to get PayPal credits is simple. You will need to fill out an online application and be subject to instant approval based on your credit history. You will need a PayPal account, which will also automatically link to your PayPal Credit, appearing as a payment option each time, you check out with PayPal. 

PayPal Credit (formerly called PayPal Bill Me Later) originally launched in 2008 and rebranded into its current form in 2015, is now available at 22 million merchants that accept PayPal as a payment option. 

While POS financing is simple – is it legit for you? Or is it just another product that encourages you to spend more? Well, let us look at the pros and cons of it. 

The pros

What makes the POS financing industry attractive is the availability of options that lack credit history checks and the ability to make set monthly payments. 

It is a better option for those looking to make big-ticket purchases since you know how long you will be making payments and when you will be debt-free. You will be able to predict your payments every month. 

Opening a credit card is a hard inquiry that shows up on your credit report, while point-of-sale financing is just a soft inquiry. This soft inquiry shuns your worry about your credit score going down.

The cons

While POS financing grabs a lot of eyeballs, one of the biggest drawbacks of these loans is the interest rate, which sometimes can be as high as 30 percent. 

You need to be clear about any fees associated with your loan. It is imperative to search for the best deal to avoid any surprises like late payment fees and deferred interest. 

Last but certainly not least, the options offered by the POS financing industry can be great if you use it correctly. It is useful for those who are new to credit and if you need to make a big purchase. Borrowing rates can be high, so it is best used sparingly — not for impulse or everyday purchases.