Modern consumers are always looking for an easy solution to enhance their shopping experience. And having financial options available can assist merchants in securing a transaction while providing a user-friendly shopping experience for their business. 

Over the years, point-of-sale financing has become an attractive choice for consumers. It enables them to purchase an item immediately while having more control and flexibility than a traditional purchasing method. 

As e-commerce continues to grow, consumers have no shortage of financing options. As a result, merchants can benefit significantly from implementing point of sale financing options. But you may be wondering, what is point of sale financing?

Consumer Shopping: What is Point of Sale Financing?

Point-of-sale (POS) financing is a customer-friendly lending option that allows consumers to make purchases immediately and then pay the amount back in incremental payments over time. From buy now, pay later options to personal loans, point of sale financing has revolutionized the way consumers shop.

As a merchant, understanding the customer experience is crucial to sales. It’s essential to understand what your customer is expecting from a transaction and simplify it through a lender. With POS financing options, merchants can add flexible financing, further expanding the number of potential consumers. So how does point-of-sale financing work? 

1. Once the consumer has reached checkout, they can select a financing option that works for them. This choice may vary based on the cost of the product. 
2. The consumer will typically provide their name, date of birth, and phone number. Sometimes, the platform will also ask for your social security number or just the last four digits. A soft credit check may be completed.
3. Consumer information is secured and processed by the lender.
4. Once a decision is made by the lender, the consumer will be presented with loan options, APR, and repayment terms. 
5. The consumer walks away with their purchase, feeling confident in paying the amount back over time. 

A consumer may choose various financing options based on their situation. For example, a buy now, pay later option is best for smaller ticket items that a buyer may want to pay over a short time. A personal loan may be used for a big-ticket item such as a home renovation and may be paid over a more extended period. 

POS Financing: The Benefits

U.S. retail purchases under POS arrangements grew in value from $49 billion in 2015 to $94 billion in 2018, representing a compound annual growth rate of 24%. With a growing network, merchants can benefit significantly from providing consumers with POS financing options. 

• Easy Integration: POS financing can integrate easily into any online platform offering in-store options that customers can access with their cell phone, thereby checking out with a virtual card using “tap to pay.”
• Young Consumer Audience: Burdened with student loan debt, many younger consumers are suspicious of credit card offers and accumulating debt they may struggle to pay back. POS financing allows simple and easy payments without much risk. 
• Increase Revenue: Merchants can potentially increase their overall bottom line with a POS financing solution. 
• Simple Management: Loan settlement is between the consumer and the third party loan provider leaving the merchant free of any management.
• Financial Technology: Fintech has changed the way consumers shop and can also help transform your business. Data collected from a consumer purchase can be used to personalize and enhance the shopping experience. This personalization allows retailers to identify the most profitable customers on the most favorable terms, ultimately saving on transaction fees. 
• Loyal Consumers: Consumers will become more comfortable with a higher-ticket purchase knowing they can comfortably pay the loan back and may even add more when they can pay over time.

POS Financing: The Risks

Every consumer has a different financial situation. Merchants need to note this and offer the best solutions possible to secure a trustworthy transaction. But there are risks associated when implementing a point of sale solution.

• Customer Returns:  A primary note when considering point of sale financing for your business is the risk of customer returns. The customer will need to return the item directly to the establishment; however, the merchant contacts the lender. It can also take days or even a month for a return to process. This scenario is also a risk for the consumer because they may still be responsible for payments while their return processes. 
• Terms & Conditions: Complicated terms and conditions can leave a consumer confused and uncertain about their loan agreement. This situation could potentially damage trust and result in less customer loyalty. 
• Incompatible Partnerships: Partnering with the wrong lender can result in more costs for the merchant. Around 50 to 60 percent of loans originated at point of sale are either partially or entirely subsidized by the merchant. Not to mention that merchants need reliable partners to enable a successful POS solution. 

For a consumer, the risks of using point of sale lending lie prominently in financing. Does the consumer have enough means to pay the amount back and on time adequately? Failure to make payments on time can be detrimental to a consumer’s credit score and result in costly fees on top of the amount already owed. A consumer should review if the lender completed a soft credit check and the terms for repayment. Additionally, a low APR is best but may not always be an option for those with a low credit score. While having low credit and still being approved for a loan may sound like a great deal, APR fees ranging up to 30 percent can have a huge effect on your pay-off amount. These checkpoints help retailers identify the most profitable customers on the most favorable terms, ultimately saving on transaction fees. 

Point of Sale Financing with Skeps

Skeps empower merchants to control their point of sale financing journey. Our patented technology helps merchants create the ultimate customer experience. For consumers, our technology has an 80% approval rate and can help to reduce the number of declines. There are no hidden costs and consumers understand the exact amount they will be paying each month leaving them confident in their purchases. Our platform enables merchants to implement multiple loan options from various lenders at the point of sale, reducing cart abandonment rates and increased sales.