ChargeAfter report highlights gaps in point-of-sale financing

Few merchants surveyed believe their current financing options meet customer needs, which likely limits sales in an already challenged environment

NEW YORK — A combination of retailers offering limited financing solutions along with lenders approving fewer loans in a challenged economic climate is limiting consumer access to financing that would otherwise increase sales for merchants whose customer base relies on access to credit to help fund purchases.

This is among the key findings of the latest Point of Sale Financing report by consumer financing resource ChargeAfter. The findings were based on a survey conducted in May by independent survey company Global Surveyz, which gathered responses from 100 participants in the U.S.

The respondents ranged from directors to C-level executives at companies with at least $200 million and an average order value of at least $250. It focused on the retailers and e-commerce players in auto parts, electronics, fitness and sports, furniture and housewares, health and wellness, home improvement, outdoors, and jewelry and accessories. The furniture industry represented about a quarter of the respondents, officials told Home News Now.

The report notes that consumer financing is a critical driver of sales for these multiple segments, with some 40% of annual gross merchant value, or GMV, attributed to financing. Seventy-two percent indicated that between 36% and 50% of their annual sales is attributed to financing. None of those surveyed reported zero sales from financing and only 3% reported sales under 25%, it noted.

However, about 45% of those surveyed reported approval rates below 60%, up from 29% last year, and only 2% of those surveyed said they had approval rates over 80%, down significantly from 12% last year. The average approval rate of 58% compares to 65% last year, with more than 40% of consumers declined at the point of sale.

“This trend highlights the growing challenge shoppers face in securing financing, underscoring the need for merchants to improve their POS financing solutions,” the report said, adding that only 6% currently cater to consumers across the credit spectrum. Thus, only 1% of those surveyed strongly agree that they are meeting the needs of their customers across the credit spectrum, and some 99% of those surveyed said they believe their sales have been “materially impacted by this shortfall, suggesting the need for full waterfall financing.”

In addition, some 78% of those surveyed said they believe POS financing is a strategic priority over the next 12 months with their top goals being to improve in-store capabilities (40%), improving the customer journey (37%), optimizing financing data (35%) and expanding lending options (34%).

And some 95% said they face challenges in managing the POS financing process, which relates to concerns about compliance (34%), lack of IT resources (30%) and security challenges (29%).  

Of lesser concern was overall approval rates (24%), which the report noted indicates “flaws in the current implementation of POS financing. These challenges suggest that a multi-lender point-of-sale financing platform is the best solution.”

Some 45% of those surveyed also said that the ability to easily connect to a lender of their choice as the most important capability in a POS financing platform, followed by a multi-lender waterfall approach to increase approval rates (35%) and full flexibility in orchestrating lenders (35%).

“Merchants require POS financing platforms that can handle the burden of multiple, complex requirements,” the report said.

Other takeaways from the report are as follows:

+ The most common POS financing options merchants offer their customers are Buy Now, Pay Later (76%), long-term installments (69%) and B2B financing (31%). Another 12% said they provide access to revolving credit at the point of sale and 21% offer lease-to-own options. “The limited choice of financing options highlights a gap in the market, as not all customers’ needs are being met. Low-credit and no-credit shoppers are specifically disadvantaged by the lack of lease-to-own availability, while shoppers who prefer to pay with private label credit cards or revolving credit, find their options limited.”

+ Some 57% of merchants said they offer POS financing at their physical stores and online, up from 54% last year. Where merchants offer POS financing mainly at one location, the vast majority do so online, 31% versus 12% in-store. “The disparity suggests that merchants find it challenging to implement POS financing in physical stores and points to difficulties in providing a seamless omnichannel financing experience. If a merchant’s online and in-store processes are not integrated, customers can experience a disjointed omnichannel purchasing journey, emphasizing the need for a unified and aligned experience across all sales channels.”

+ Some 67% of those surveyed said they  cater to near-prime customers, compared to 26% saying they catered to prime and subprime respectively, while only 6% said they catered to the entire credit spectrum. “By focusing on near-prime customers, merchants miss the opportunity to offer prime customers the best terms, potentially driving them to competitors with superior loan choices. This trend underscores the need for a broad approach that caters to the diverse credit profiles to maximize approvals, drive sales and improve customer satisfaction.”

+ Declines in approval rates noted earlier in this story “is indicative of lenders increasing risk aversion amid economic uncertainty,” the report said. “This trend highlights the need for merchants to diversify their POS financing. Offering more flexibility and catering to the full credit spectrum, including expanding near-prime options beyond Buy Now, Pay Later, will increase approval rates.”

And with only 1% of those surveyed strongly agreeing that their current credit offering meets customers’ needs, highlights “a significant gap in the effectiveness of current POS financing solutions,” the report said. “The inability to meet the needs of the entire customer base poses a serious risk of lost sales, with 99% of merchants acknowledging that their sales have been materially impacted by the gap.”

This, the report notes, “underscores the importance for merchants to reassess their POS financing strategies and mitigate the risk of lost sales.”  

Thomas Russell

Home News Now Editor-in-Chief Thomas Russell has covered the furniture industry for 25 years at various daily and weekly consumer and trade publications. He can be reached at tom@homenewsnow.com and at 336-508-4616.

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