Point of Sale Financing – The Next Wave of Credit

Imagine that you’ve spent serious money on marketing, you’ve printed coupons and even taken out an ad in your local paper. You’ve gone all out and purchased the very best and latest in back-to-school products, created the perfect promotions and offers and your store's shelves are full looking glistening fresh – just like the day you opened your business. As expected, the shoppers start streaming into your store, one by one, and you’ve finally got that smile back on your face.

The shoppers are swiftly filling their baskets and taking their products to the checkout counter ready to pay. You ring up the orders, tell them the price and you’re handed a shining new plastic credit card – ready for you to swipe away and send the new customers along with your shopping bad in hand… One little problem or snag,… you don’t accept credit cards!

That was the personal reality show of many retailers starting in the ’60s who were reluctant to move towards new payment methods and decided on the status quo. Today, you can’t find a single canteen, bodega, corner store or business of any size that doesn’t accept plastic. In fact, retail and payments are rapidly turning into “cashless” and many businesses refuse to accept tender greater than $50 or $100.

The short story above was also known as credit 1.0 or the intro of an alternative payment method other than cash into the retail world. If we look back to history, we can find many other examples of currency changes, such as the move from precious metals into cash, or animals into precious metals etc. for trade.

Today we’re in the era of yet another massive change of currency. The currency of credit. Most people and merchants still believe that credit cards are the currency or payment method of choice and that consumers are flocking to apply for new cards with high limits, free miles and all the other perks associated with plastic. The truth is, credit cards are becoming more about credit and less about cards.

Did you know that 63% of millennial’s and gen “Z’ers” do not own a credit card?

Yeah, as a business owner, eCommerce manager or as an online retailer that should spook you. So, if the future generations of consumers don’t own credit cards but nearly all their purchasing is done online – How are they going to pay for the products they want?

According to bankrate.com, Millennials are the least likely of any age group to pay their balances in full each month. In fact, only 40% of them pay their entire balance every month, compared to 53% of adults 30 and older. But the issue here isn’t “credit cards” the real problem that consumers face is the aversion to growing debt. In fact, many of the millennials have witnessed some sort of financial crisis with a parent, loved one, friend and of course the news. Additionally, with the growing costs of higher education, most millennials are already tens of thousands of dollars in student loan debt even before they started living their life.

Consumers are still consuming. eCommerce is still having a steady 15% annual growth. Amazon just had a record “Prime day” with over $7 billion in sales in just 48 hours (a 72% increase YoY) according to “Internet Retailer.”

Welcome to credit 2.0 – The new wave of credit!

Point of Sale financing, Checkout financing, or consumer financing. Call it what you will. Checkout financing is rapidly become the payment option of choice by shoppers, and there are several reasons for that.

Now that we understand that our current and future consumers (Millennials and “Gen Z”) are opposed to plastic or credit as we know it, why should you be offering point of sale financing as a payment method in your store – today.

1. Remember the beginning of this post? You don’t want to be “that” business that was unable to accept payment because you were unprepared or reluctant to embrace change. You don’t want that to be your story
2. Credit cards tend to have higher APR rates some reaching into the high twenties. With point of sale financing, merchants can offer 0% APR over 6, 12, 18 and all the way up to 48 months with equal payments. This makes financial decision making for consumers easier than ordering a Grande, bone dry, five-shot ristretto, extra-whip, two-raw-sugars cappuccino from Starbucks
3. Pure psychology and consumer behavior. Let’s say you sell LED smart TV’s on your site and the average 55” TV sells for $599. To some, placing $599 on their credit card will take up a nice chunk of their available balance which will lower their credit score because of a higher debt to credit ratio and to be honest, we never know when we may need that room on our credit cards for a rainy day. Additionally, with the average APR of 17% on a credit card, the consumer will end up paying way more than the original sticker price. With POS financing, you can advertise the item with its full-price and an “ALA” (as low as) offer such as “Buy it for as low as $59/month with 0% APR.” The consumer is more likely to add the item into the cart and magically even throw in a new PS4 for the kids since the consumer knows ahead of time how much they will pay every month, and the time length needed to pay off their purchase
4. Doesn’t affect your credit score. When your credit card reaches 40% utilization, scores can drop about 30-70 points. That hurts. Using the point of sale financing adds a new credit line to your credit and may actually improve your score. Just don’t forget to pay it off 
5. On average ChargeAfter merchants notice 45% increases in their AOV and an overall 30% increase in sales
6. Point of sale financing is the natural penicillin of cart and site abandonment. Let me explain. The numbers don’t lie! Customers get the jitters when the payment process takes too long or is too complicated

The average eCommerce site has a cart abandonment rate of between 70-90%

• 28% of shoppers abandon their carts due to long and complicated check out processes
• 19% leave because they don’t trust the site with their credit card information
• 8% leave due to lack of payment options
• 4% skip the checkout because their credit cards are declined

From this data, we can learn two things. First, the longer the checkout process, the more likely customers are to walk away. Second, credit cards cause a lot of grief when it comes to completing payments.

So just how do you close the sale?

The solution to both issues is simple: Consumer financing. Implementing ChargeAfter takes care of both issues simultaneously. Here’s how:

• ChargeAfter adds a financing button to the payment options, taking care of the 8% of customers demanding more diverse ways to pay.
• Clicking on the financing button brings up information about how financing works, as well as the first step of the credit application.
• If they choose to proceed, the credit application is just 5 fields of information that can be filled out in seconds. When they submit, customers get to see their financing options moments later. This helps address the 28% of customers who are concerned about the long or complicated checkout process.
• After they’re approved and select terms, customers can check out without entering their credit card. Instead, they accept the financing for the total. This satisfies the 19% of shoppers who are wary of giving away their credit card info and 4% of customers dealing with a declined card.

Consumer financing streamlines checkout, addressing all the major factors that might otherwise lead to abandoned carts.

Consumers making a high dollar purchase already have enough decisions to make. When it comes time to decide how to pay, they’ll avoid pressing the buy button at all costs when their credit card is at the receiving end of the transaction. However, when they’re able to painlessly pick their own financing terms, the decision to check out becomes a lot less painful!

Instead of the last decision being “should I stay, or should I go?” make sure your customers’ last decision is “which of these financing terms is right for me?” Your abandoned carts rates drop, conversion rates rise and, best of all, returning customer numbers soar.

ChargeAfter’s platform was founded with the goal to help every consumer access to fair, and obtainable financing options tailored to their unique needs.

ChargeAfter is a market-leading financing platform that empowers retailers to offer consumers personalized financing options at checkout from multiple lenders. Through our growing network of global lenders, retailers can approve up to 85% of applicants in real-time and increase sales by up to 45%.

ChargeAfter’s network offers seamless integration for lenders to increase their customer base and compete for business while expanding into new retail markets by streamlining the distribution of credit into online and in-store point of sale financing.