The UK point of sale (PoS) finance market has been quite healthy in recent years with sustained growth reaching £1.8 billion. In the first quarter of 2018 personal loan balances in America surged by 18% year-on-year to $120bn and in the UK they grew by £1.1bn in August 2018. However, it is estimated that the current lack of finance options is costing the UK over £25bn in lost revenues. A recent report indicates that almost 27% of people have never used credit to buy any goods. However, a recent survey of more than 1000 customers suggested 87% would be interested in paying for large purchases via credit.
There is an opportunity for banks to drive growth by improving the customer centricity behind consumer credit journeys. I believe there are a few key drivers banks can apply to boost customer growth and compete with newer entrants such as Duologi & Klarna.
- Make it fast and smooth
Customers today no longer differentiate between the experience of paying for a product or a service and that of browsing or purchasing the product. In the traditional retail experience (both online and in store) customers want to buy products quickly and easily (especially online).
However, the experience of taking out a loan at the point of purchase still needs to be improved. Almost 24% of customers think that applying for credit is too slow or clunky and a further 20% think the decision on their application takes too long. “If my Amazon order can arrive on the same day, then why should applying for credit be so outdated and slow?” Almost 50% of millennials would abandon their purchase if the process took too long. That is a lot of spending power and potential revenue for banks and merchants lost due to a bad customer experience.
So, what can banks and incumbents do? Make the process swift and frictionless. Klarna, a disruptive Fintech, provides a “buy now, pay later” option at the checkout. Enter your e-mail and shipping address and the product is bought. A powerful customer experience delivered seamlessly.
- Have my needs at heart
Customers today expect to receive personalised recommendations and services. In a world where brand loyalty within banks is not only low but is constantly being challenged, the key to repeat customer business is personalisation and flexibility.
It is important that banks understand that a digitally savvy customer looking to buy the next accessory for their device is in the market for finance for as little as £100, whereas a young professional who is looking to buy a new car is probably in the market for as much as £15,000. It is key for credit providers to realise this variance in product offering and use innovative digital technologies to provide solutions that work across the customer segments and needs. For example, PayPal provides financing for as little as £99. Banks need to streamline their operations to compete across a wider spectrum.
- Make credit available wherever I am
Customers are using credit to get access to and purchase a huge range of products. Almost 30% of customers are as likely to use credit to pay for holidays as they are to buy furniture. They are using credit to buy from a range of sectors from veterinary treatments to beauty treatments. Again, the key theme underlying the above trend is personalisation: “Access to the right amount of money for the right use”.
Banks need to follow their customers wherever they may need credit either directly through merchants or indirectly. Help customers understand that you are by their side whenever they need financial assistance…to gradually become utterly dependable, especially for millennials.
- Make it appealing to me
Almost 75% of customers said that 0% finance is an important consideration when it comes to buying products through finance and over half surveyed (56%) said that they have experienced high APR’s. Of those, 28% have experienced a hidden charge on repayment which breaks trust and impacts the longer-term relationship. A customer’s experience with a product does not end when they purchase it. It stays with them for the lifecycle of the product and beyond.
A key driver for customers to buy finance is not having to pay more for their product than the actual retail price. Therefore, 0% finance is a great motivator for customers to use consumer credit but only if it is applied transparently and fairly. For banks this means:
- Using the power of digital to create a more flexible payment structure with merchants
- Using data driven insights along with economies of scale to ensure that providing finance at 0% works both for banks and merchants
For example, PayPal Credit’s recent 0% interest offer allows customers to pay no interest on all purchases above £150 for 4 months and it allows them to reuse the offer multiple times. This creates pseudo brand loyalty by encouraging repeat purchases and offering the customer true 0% finance.
- Make me want to come back
Last but not least, banks need to evolve from an invisible player to a visible one. Banks need to become the company that helps realise their customers’ dreams and become their first point of call. Banks should find ways to create loyalty by increasing the frequency of their customers’ visit to their channels. This should be a key driver of a banks’ ultimate multi-channel product approach.
A win-win for all players
PoS lending offers a significant opportunity for banks to expand their credit books. However, to truly unlock the dormant £25bn market, banks will need to compete for customer business not only once but multiple times by establishing frictionless experiences and journeys that create loyalty. This is ultimately a win-win for all players: customers, merchants and credit providers.
- “Lack of consumer finance options costing UK businesses £25bn,” Business Matters, August 6, 2018. Access at: https://www.bmmagazine.co.uk/news/lack-of-consumer-finance-options-costing-uk-businesses-25bn/
- “Finding the Right Balance – A Report on the future of consumer credit lending,” Duologi, July 2018. Access at: https://www.duologi.com/Duologi_FindingTheRightBalance_5b4_5d-1.pdf
- “Tech startups are reviving point-of-sale lending,” Economist, August 4, 2018. Access at: https://www.economist.com/finance-and-economics/2018/08/04/tech-startups-are-reviving-point-of-sale-lending
- “Why point of sale lending is hot right now,” American Banker, February 7, 2018. Access at: https://www.americanbanker.com/news/why-point-of-sale-lending-is-hot-right-now
- “United Kingdrom Consumer Credit,” Trading Economics, 2018. Access at: https://tradingeconomics.com/united-kingdom/consumer-credit
- “40 ecommerce statistics,” Pure360. Access at: https://www.pure360.com/40-ecommerce-statistics/