Buy Now, Pay Later: The Benefits of Point-of-Sale Financing

With COVID pushing more consumers to buy online, people have been doing much more shopping online than ever before. Now, with schools offering in-person and hybrid teaching models and the potential for COVID-19 to spike again in the final quarter of the year, even more families will turn to e-commerce for food shopping, home goods, toiletries, clothing and the upcoming holiday shopping season.

Technology-enabled point-of-sale financing (POS), or point-of-sale lending, appeals to consumers who want what they want now but with some more control and more flexibility compared to credit card purchases. POS financing appeals to both online and store-based merchants who want more ways to enable them to make a sale while the consumer is considering a purchase. Online merchants recognize POS financing’s appeal to Millennials and Gen Z purchasers who prefer to make purchases this way over credit cards.

In order to make more expensive online purchases more affordable without resorting to profit killing discounts, we are seeing more online merchants offer alternative financing solutions at checkout to make it easier for consumers to pay for items in smaller, more manageable payments. Point-of-sale consumer financing companies have been on the rise in popularity and have become quite prevalent in the retail space over the past year, and with one of these services in place, businesses can make the shopping experience easier and more affordable for its e-commerce customers over the next months and far into the future.

In a study conducted by Citizens Financial Group found that 76% of consumers surveyed said that they are more likely to make a retail purchase if a payment plan backed by a “simple and seamless point-of-sale experience” is available. Interestingly, the study found that for two-thirds of the consumers, the desire for credit cards is satiated — they want more credit, but they don’t want more credit cards. 

What is Point-of-Sale Financing?

Point-of-sale financing is a consumer financial solution that is offered to customers at the point of purchase on an e-commerce site in order to aid the customer in buying a product or service.  As opposed to the types of consumer loans that have been around for a while, such as car loans, the POS financing solutions that have become popular in recent years have expanded to the web, making it possible for loan options to be immediately available and accessible to consumers shopping on e-commerce sites.  This consumer financing solution is particularly valuable for e-commerce sites that sell products at higher price points or whose cart totals can exceed a certain amount fairly easily, making purchases far more affordable and manageable to consumers by spreading out the total payment over time.

A majority of the fintech companies that have emerged in the POS financing space offer customers who use their financing solutions to pay for products or services in equal installments, typically monthly or weekly.  The process to apply is normally simple, only requiring a few pieces of personal information and a few minutes of a customer’s time to determine if that customer is approved.  The installment repayment terms are usually fairly simple and clear before the loan is taken out.  There are a number of key players in the space that offer this type of financing, and all have slightly varying terms and options.  We will discuss and compare some of the more popular fintech companies being offered on e-commerce sites later in this article.

Should Your Business Offer POS Financing?

As a result of the pandemic and ahead of the holiday shopping season, e-commerce companies are offering POS financing options at the point of checkout. Here are some of the key benefits that POS financing can offer your business:

• Increases customer buying power: POS financing allows consumers to purchase items of higher cost value and/or increase the total order value, which can lead to higher profitability for your company.
• Get paid in full: While the consumer is able to pay the lender back in installments (typically 3-36 months), in most cases, the loan provider will pay your business in full for the purchase within one business day, making the time between the sale and receiving the full payment brief.
• Reduce fraud: The lender settle within one business day and help take on risk, from costly chargebacks to fraud.
• Expand your customer base: By essentially making your products more affordable over an extended period of time, POS financing can now make your products more affordable without having to discount, opening the door to expanding your customer pool. This is especially true for younger consumers, who recently have been using POS financing solutions as an alternative to credit cards for larger e-commerce purchases because of their simpler and more transparent terms and as a way to combat overspending and debt accumulation on credit cards.
• Better customer experience: By making a purchase more affordable, the buying experience is simply more enjoyable. The hassle-free experience selecting the financing option at the time of check-out is a positive customer experience which can lead to customer loyalty and future purchases.

This all sounds great, but it’s inevitable that with anything involving financing, there can always be some cons.  Similar to credit card fees, your business will likely have to pay a small fee per transaction when a customer decides to finance their purchase through the POS intermediary on your site.  Some of the POS financing companies also charge substantial fees to set up and manage the financing option on your site.  In addition, in some instances your customer may also have to pay interest on their loan, which may deter them from using the POS financing service.

How To Get Started Offering POS Financing 

The first step in beginning to offer POS financing options on your e-commerce site is to make sure there is a need for the service on your website – are customers who are visiting your site looking to purchase products that they cannot afford upfront or would prefer to pay over time?

If the answer to that question is yes, then you must next determine which POS financing service to offer on your site that best suits the needs of your business and customers.  Below are some of the more popular fintechs that offer POS financing solutions:

Affirm:

• no minimum credit score
• loan repayment period of 3, 6, or 12 months
• interest varies depending on what options the customer selects, but can be as low as 0%
• only simple interest, no compound
• no late fees (even if the customer has a late payment)
• reports on-time payments to Experian

Afterpay:

• no credit check
• 4 total payments, with a payment every two weeks (with the first payment at the time of purchase)
• interest free
• $8 late fee, capped at 25 percent of total purchase price if multiple payments missed
• does not report to credit bureaus

Klarna:

3 options

• 4 installments option
  • soft credit check
  • 4 total payments, with a payment every two weeks (with the first payment at the time of purchase)
  • interest free
  • up to $7 late fee
• Pay Later option
  • soft credit check
  • receive order immediately, but pay within 30 days in full
  • interest free
  • no fees
• Financing option (for larger purchases)
  • hard credit check
  • repay within anywhere from 6 to 36 months
  • annual interest rate of 19.99% (no interest if repaid within 6 months)
  • late fee of up to $35

Once you select which option to feature on your site, you must make sure you advertise to your customers that the option for POS consumer financing is available.  You can advertise the new option on your home page, on your social platforms, or in your advertisements.  Make sure that the option is successfully integrated into your site’s payment and checkout process and that the financing solution is easily visible and accessible online and on mobile.

With the POS financing option up on your e-commerce site and advertised to your customers, we’d say you’ve built a win-win situation for your business and your customers, generating value for both sides of the deal.  All that’s left to do is let the purchasing commence.