Retailers Face Choices When It Comes to Point of Sale Lending

In outline, POS installment loans harken back to the store-credit and “layaway” plans that householders commonly used to fund big and not-so-big purchases in the 1950s and 1960s.

Unsecured lending is booming, with point-of-sale, or POS, installment-financing at the forefront of this retail revolution. In turn, POS financing — which comprises a market worth more than $400 billion annually — is being fueled by increasingly attractive eligibility criteria, disenchantment with credit cards, enhanced consumer awareness, and innovations in financial technology.

Traditional retailers face eroding sales as bargain-hungry shoppers flock to the internet-based outlets and discounters they view as cheaper alternatives. But with POS lending capabilities brick-and-mortar stores are fighting back, armed with smart, user-friendly technologies backed by improved underwriting algorithms that let them close more sales on big- and medium-ticket items. In fact, a study by Hitachi Capital suggests as many as 4 in 10 consumers might not patronize retailers that don’t provide POS credit options.

Golden Age

POS financing, an agreement for a buyer to pay off a purchase in installments, is especially attractive to younger consumers. Millennials — with harrowing recollections of their parents’ experiences in the Financial Crisis of 2008, and a pronounced (and apparently growing) fear of compounding their student-loan debt — aren’t as likely to own or use credit cards as their elders. As a means of obtaining unsecured financing, Millennials and their Gen Z juniors view credit cards as murky, restrictive, and unduly usurous, according to the online publication PaymentsSource. 

Meanwhile though, these young consumers have become big fans of POS installment loans, which come with a hint of the homespun nostalgia that appeals to this demographic. In outline, POS installment loans harken back to the store-credit and “layaway” plans that householders commonly used to fund big and not-so-big purchases in the 1950s and 1960s, a period widely viewed as a Golden Age for the middle class, especially in the US.

Taken together, Millennials (40.6%) and members of Gen Z (35.1%), account for more than three-quarters of POS installment borrowers in Australia, says market-research firm Roy Morgan. At the same time, POS financing is also catching on with older consumers worldwide. In this light, providing POS financing as a credit option for consumers looks like an obvious choice for retailers that plan to stay in business for a while.

That said, retailers are left with the mission-critical choice of how to go about providing this dynamic financing alternative. Essentially, they have to decide whether to hire an outsourcer or do it themselves.

Brass Tacks

Among POS outsourcers are Affirm, Bread, Lightspeed and, most famously perhaps, Square. The go-it-alone option sounds daunting until you realize fintech companies like TurnKey Lender and nCino cater to this growing market with advanced, cloud-based lending functionality for POS financing — and in TurnKey Lender’s case, this proposition extends to small and midsize retailers of all types, not just the big guys.

Backed by best-practice workflows along with advanced credit-scoring and decision analytics, Turnkey Lender offers a number of advantages over other POS solutions, including:

• Improved portfolio yield from technology that lets retailers optimize portfolio yield by working only with the most profitable customers along with predictive models to pinpoint optimal rates and terms.
• Increased operational efficiency that’s supported by artificial intelligence to enable fast and smart decisions. 
• 24/7 IT support and customer service to answer your questions in real-time.
• Mobile-lending capabilities via secure web app for on-the-spot customer service whether you’re at a cash register or at the far end of a vast showroom.
• Affordability due to its modular structure. With TurnKey Lender, you can start small and add functionality as needed.
• Scalability that lets your POS-financing program grow along with your business. 

Another reason many retailers prefer fintech providers like TurnKey Lender over outsourcers is flexibility. Sign up with an outsourcer and in most cases, they make the rules around loan durations, financing types — loans, leases, or lines of credit — and interest rates. That makes it harder for retailers to tie purchasing incentives such as lower rates, grace periods, and promotions to their financing programs.

Last but by no means least, there is of course money to be made from lending. Retailers that choose outsourcers as their partners in POS financing share the fees borrowers pay with these providers. Those that opt for a technology provider typically pay a subscription for the software-and-service package but keep the fees for themselves.