The point of sale finance system has gained huge traction in recent years. It is considered today to be one of the best and strongest tools to help a business grow. Researches have indicated that businesses that implemented POS financing saw more than 30% increase in their sales. POS financing is available in different forms like unsecured debts, line of credit and credit cards. It has become so successful due to the reduced time for underwriting and the low interest rates. This made it easy to replace traditional financing methods which came with hefty interests. If done correctly, Point of Sale financing can be useful for both businesses and consumers.
But it does not have to stop there as point of sale systems can be improved further with an in-depth financing strategy. With the existence of POS it has become possible for major merchants, vendors, fintech and other lenders to use it to finance their business activities. It is an easy way to surpass heavy bank and credit card interest. POS lending helps different businesses to divide large purchases into small segments. It does not have the set credit limit and limited repayment time along with heavy interest rates which credit cards hold.
In the US the POS unsecured loans have been on the rise which rose from 8% in 2018 to an unexpected reach of 11% by 2021. Banks and other credit lenders still are trying to grasp the entire dialyte of POS lending. This means that they are missing the greater opportunity which lies with this kind of lending since the rate at which it is growing it can only grow further. With the increased number of post lenders it is greatly beneficial for consumers but not so much for traditional banking systems.
The main Factors which have been impacting POS lending in recent years are:
• Consumers and merchants are more aware now and so there is a shift in their preferences.
• The market share has been grasped by small-ticket purchases and high prime segments.
• Competition has been on the rise.
• POS financing plays a major role in pre-purchases.
Due to this increased competition, loans which are generated out of it almost 50 to 60% are subsidized by merchants. This has also led to POS lenders partnering with smaller merchants which has also drastically changed the risk models. Most of the users who finance big purchases with POS lending utilize it for free of cost. This kind of financing integrated into a consumers’ purchase intention has increased the acceptance of consumers of such financing. The consumers get a competitive rate of 10 to 30 percent interest rates on some platforms while there are some which are offering zero-interest financing. This has made it more beneficial for the consumers.
The best ways to improve POS financing strategy are:
Create an end to end solution model: this is an option which can be undertaken by major financial institutions. This would include creating an end to end solution which is to be offered by the institution themselves. This can be a viable approach if the financial institution is large enough to invest and create such a solution for themselves and can also produce it at the earliest since the competition is really high and rising in the marketplace.
The platform partnership solution:
The larger financial institutions can collaborate with different technology platforms in order to give their consumers an integrated end to end solution. The solution can include KYC, merchant underwriting, decisioning, servicing, origination and dispersing delete funds. This can be a long term approach since the financial institution only works on forging better relationships with their merchants or consumers while the maintenance of the platform and the working of it is the burden of the technology platforms. There can be four kinds of fees associated with such platforms which include a fee for customizing the platform according to the needs, second a license fee to use the platform, a fee for every unsuccessful transaction and a fee for every Loan which is sanctioned.
Marketplace focused model:
This model allows banks or such other financial institutions to create a business model which provides some comparative advantage in the market of lenders and merchants. The terms and conditions and privacy policies can be directed in such a way which gives the consumers utmost benefit.
Offer discounted rates: this is a very common model which is used by businesses nowadays. Since the lenders and merchants do not charge upfront processing fee there is a charge levied on the discount rate. The consumer believes that they are receiving a zero fee service which encourages them to buy goods which are valued more and the merchants also earn from the fee levied.
Multiple lender platforms:
Many merchants and banks can offer it on one platform. This way consumers have various options off loans and also control over rights. The retailers also get the advantage of better approval rates.
POS financing is the best alternative financing method to traditional bank and creditor financing. Creditors and vendors can garner many consumers in a short time. But the major limitation to this now is that the market is at its peak of growth and is growing very fast. The next 12 to 18 months is the optimal timing to enter the market. Since beyond that most merchants and creditors will already have a POS financing service or the competition would have grown majorly. So big that it becomes a barrier to enter into the market. So it is best for financial institutions to be the most diligent in entering the market as soon as possible. More consumers will reportedly shift their preference to point of sale finance, so it should be adopted at the earliest, if not already. The above method can also be implemented as these are the best market practices to garner more consumers.