How Digital Lending at the Point of Sale Is Transforming the Financial Services Industry

Just about everything in our economy has experienced some sort of change during the COVID-19 pandemic, and commerce is no exception. 

Today’s retailers are focused on creating frictionless digital experiences, allowing customers to quickly and conveniently purchase items from their online store with just the click of a button. One such tool that stores have used to empower consumers in recent years is point of sale financing.  

Point of Sale Financing: An Overview

At its core, point of sale or “POS” financing is exactly what it sounds like; it's a digital lending option that lets customers make purchases with incremental payments, rather than one lump sum.

One of the reasons why this trend is disrupting the financial services industry has to do with the fact that it's far more convenient for consumers than traditional financing options that had been available to them in the past. Many lenders who offer this option have 0% annual percentage rates, so long as the total bill is paid off in a predetermined period.

While it's absolutely true that financing a purchase isn't always the best option, for brands it's still important to offer this to consumers. It's a great way to embrace those people who may not have otherwise made a significant purchase had the entire bill been due at one time.

Point of sale financing is also notable for having less strict eligibility requirements than alternative methods of lending. Yes, it's true that the annual percentage rate may change based on the eligibility of the customer in question — but it's still far more convenient and efficient than options that had been available in the past.

Likewise, those customers who are approved can choose from a variety of repayment terms depending on both their needs and the lender they've chosen to partner with. Sometimes, lenders may offer repayment periods in even three or six months. Other times, they may offer periods of 12 months or longer. This flexibility reflects positively not only on the lender, but also on the brand offering the point of sale financing in the first place.

Why Is POS Financing Transformative? 

Point of sale financing is a compelling innovation for the financial services industry due to its ease of use and consumer-centricity. 

As previously mentioned, modern retailers are focused on creating tailored shopping experiences. Point of sale financing is another piece of this puzzle, offering a quick and easy way to secure financing on large orders or high-ticket items — often without leaving the native eCommerce platform. POS financing meets customers where they are without slowing them down. Applicants now have the option to underwrite a loan in real time, instead of days. 

This convenience factor is especially important now that 40% of consumers have started using digital channels more frequently during the COVID-19 pandemic. The more time people spend online, the more retailers and financial institutions alike need to adopt digital-first business models and put customer experience first. 

Likewise, it’s critical to consider the shifting demographics of today’s borrowers. With an estimated population of 72.1 million, Millennials have surpassed Baby Boomers as the largest generation group in the United States. This group of digital natives will continue to drive the demand for financing and other financial services, and they’ll expect to access it the way they know best — digitally.     

The same goes for Generation Z, a group who has been familiar with credit from an early age due to the rise of the subscription economy. Financial services and fintech need to tailor their services to these savvy demographics, or risk falling behind. 

Conclusion

Back in November 2019, McKinsey claimed that “traditional players exploring a play in POS financing have a limited period to enter the market and grow. In 18 to 24 months, laggards either will be unable to compete, because most merchants will already have POS financing partners, or will need to pay a heavy premium to get into the market.”

Here at DMI, we believe financial services should be frictionless, integrated, and human-centric. After all, digital transformation isn’t just about technology; it’s all about people and making tech work for human beings. 

If you’re interested in implementing point of sale financing at your financial institution, contact us. We can work as an extension of your team while bringing together the innovative, design-forward thinking of a digital agency with the rapid and iterative delivery of a modern IT services partner. 

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