Throughout the pandemic, a new level of convenience has become customary for online shoppers. With such a massive shift in the way people shop and the patterns of their buying power, consumers have become accustomed to a more flexible buying experience. One of the main ways merchants can provide flexibility is through short-term financing options for shoppers.
In fact, retailers that offer POS financing see an average 20-30% increase in conversion and a 30-50% increase in average ticket size. There are a few different forms of short-term financing that customers are drawn to, which are:
- Buy now, pay later (BNPL) programs
- Consumer loans
- Store credit cards
Let’s discuss each option and then dive into how merchants can easily offer them to their consumers.
BNPL payment programs are the fastest-growing financing product in the world. As of 2021, around 56% of consumers had used a BNPL program, and the user base grew 85% in a 15-month period between 2020 and 2021. But what are they, and how are they different from loans?
Buy now, pay later programs are low-to-no-interest payment plans that don’t report to credit bureaus unless a payment is missed. This makes them far less costly than regular loans in terms of both finances and credit score while still having a clearer and shorter payment schedule than a credit card. The most common format of BNPL is the pay-in-four plan, which allows a purchase to be broken up into four equal, zero-interest payments.
This combination of features has made BNPL the leading feature of many POS financing platforms. Its convenience and accessibility make it extraordinarily attractive to consumers making a purchase of any size.
A more traditional form of financing, consumer loans can be a solid option for larger-ticket purchases that carry more risk. They are structured like a conventional loan, but they aren’t actually secured (meaning that the product cannot be repossessed upon default), so they carry more interest. These loans can be short-term (6-12 months) or long-term (A year or more), making them a flexible option for retailers that sell products with large price disparities.
These loans do report to credit bureaus and almost always charge interest (with the exception of certain promotions), but they are also more regulated than BNPL to protect both the consumer and the retailer. This can provide some peace of mind that doesn’t come along with more novel alternative financing options.
Store Credit Cards
A favored choice by big-box retailers, store credit cards serve the dual purpose of providing financing at the point of sale and encouraging repeat businesses through promo rates and rewards. These store credit cards often offer cash back rewards or points that can be used for discounted/free merchandise, which gives consumers an incentive to make that retailer their go-to.
For most store credit cards, interest is waived or lowered for a fixed promotional period, after which the card reverts to an APR disclosed to the consumer before they take possession. This provides a similar level of affordability to BNPL initially, but allows more flexibility as to when they make the payments. Credit cards are also unsecured and report to credit bureaus but can be used as a credit-building tool more effectively than BNPL and consumer loans.
Leases are a more niche option, typically well-suited in industries with a predictable 1-3 year purchase cycle. Cell phone providers are a great example of businesses that benefit quite a bit from a lease option, allowing the consumer to pay less each month for their phones under the condition that they return the phone after the lease period is over.
At this point, consumers have the choice to buy out the phone for its remaining value, return it, or begin another lease on a new phone. Like store credit cards, this purchase pattern makes it extremely easy for consumers to purchase again and again, paying a similar monthly fee for the entirety of the business relationship but getting to upgrade their phone every couple of years.
Leases do often report to credit bureaus, but differently than debts, so they have a low credit impact. They can also help consumers with lower credit scores since they are secured with the purchased item as collateral, making them a lower-risk option for merchants.
Offer Short-Term Financing Options for Shoppers with Skeps
Skeps offers a comprehensive, end-to-end consumer financing program that helps businesses modernize their entire payment process. We go above and beyond one-click payment, also offering a one-click application process for several different types of consumer financing, including:
- Consumer loans and leases
- Branded credit cards
If you’re looking to partner with a forward-thinking fintech company that will keep consumers' eyes on the purchase while offering best-in-class financing, Skeps is the perfect fit.