In the point-of-sale industry, merchants must constantly weigh the pros and cons of single vs. multi-lender partnerships. While the impacts of the lending structure are not immediately apparent to consumers, it can significantly affect their chances of financing acceptance, making it a crucial decision for merchants. Each method has its advantages and disadvantages, and merchants must consider all relevant factors before choosing.

This article will outline some of those pros and cons and explain each lending method's subsequent impact on eCommerce.

Single vs. Multi-Lender Financing

Working with one or many lenders provides merchants with differing short-term and long-term opportunities. Some of those opportunities (and their potential effects on business) are as follows:

Single Lenders

Single lenders typically target applicants with good to excellent credit. Their primary objective is servicing consumers who are most likely to repay loans within the agreed-upon period and expose the lender to the least risk.

• Advantages

Less risk can often mean a stronger and more easily sustained relationship between the lender and merchant. A lender is typically more inclined to work with a merchant that attracts creditworthy customers who do not present significant repayment issues.

• Disadvantages

Lending selectivity can often be restrictive for merchants and negatively affect revenue.

Lenders will typically only approve purchases of up to $2,000 without running a credit check, but even then require a down payment of 25-50% of the purchase price. If a customer is unaware of these requirements before shopping, the entire process might result in spiking cart abandonment rates and plummeting conversion rates.

For example, a customer selects a product to purchase, begins the checkout process, and then finds that they owe 50% of the cost up-front. The customer may exit the checkout page at this point, meaning the merchant loses the sale at the tail-end of the customer journey.

Multi-Lenders

Like a single lender structure, the customer completes a financing application at the point of sale. The system then directs the customer through a "waterfall" of lenders that helps customers identify the most tailored financing options that best fit their needs. "Prime" lenders (those that work with borrowers with good credit) are the first to review the application. If they reject it, they forward it to “near-prime” lenders.

If near-prime lenders also reject the application, they redirect the customer to the third tier (or “subprime” lenders) for a final decision. Customers who do not secure financing by this stage have extremely poor credit and will face difficulties finding agreeable lenders for any borrowing.

• Advantages

The multi-lending process provides consumers access to multiple point-of-sale financing solutions based on their requirements and financial situations. These options mean that customers have expanded opportunities and more flexible repayment terms, giving them more say in financial decisions.

As a result, merchants can approve a significantly higher percentage of applicants. More approvals mean fewer abandoned carts and higher conversion rates.

• Disadvantages

A multiple-lender approach might confuse a consumer, particularly if they have poor credit. 

The lower the credit score, the greater likelihood that several lenders will deny the loan request.  Receiving multiple rejections for one application request might appear baffling, effectively damaging the consumer's relationship with the merchant.

A multi-lender solution can also be costly if not accompanied by a connector platform.  The merchant must then manage and maintain the technology themselves, which often comes with significant monetary and workforce investments.

The Decision’s Effect on E-commerce

The popularity of online shopping is skyrocketing. Not only can customers purchase their everyday needs without leaving home, more “big-ticket” items (or large purchases that require a significant financial commitment) are also becoming more readily available.

Therefore, it is often in merchants' best interests to offer multiple financing solutions to meet the needs of varying credit types. These expanded options and more flexible repayment arrangements can foster a sense of confidence at checkout. That confidence can translate into not only more purchases but larger, higher-value ones as well.

As already discussed, stricter consumer credit approvals often result in abandoned carts, poor conversion rates, and potentially a sharp decline in customer loyalty. However, while fewer approved applications typically mean decreased sales, merchants should also consider the potential value of a relationship lender when procuring future financing.

Make Your Decision Carefully

Payment methods are constantly evolving. While merchants and consumers alike can utilize a wide range of point-of-sale services, there is a critical distinction between the platforms of single vs. multi-lenders of POS financing.

Each has its pros and cons, and merchants should carefully consider what best meets their current needs and which relationship might provide better economics during future business dealings.