Customer demand for credit has never been greater.
In the UK, there are 60 million credit cards held by 32 million consumers. When it comes to retail (point-of-sale) credit, a revolution is under way. Over half of the top 100 retailers now offer credit options to their customers. Thousands of smaller merchants have also introduced consumer financing in the last few years.
Consumers in the UK are more willing and more able to make purchases on credit than ever before and yet fourteen million of them are credit constrained – they are excluded or at very least find it difficult to obtain mainstream credit products. High house prices, weak income growth and tighter lending have made home ownership harder. Barely half of all families in Britain own their own home, highlighting the extent of the rise of generation rent.
Payments and lending are converging
Since 2011, retail credit technology has evolved to become more and more payment like. Automated credit scoring has resulted in four second decision times. Refunds and amendments can be managed via API’s. Daily settlement to merchants means cash flow mirrors other primary payment methods. In short, retail credit can now be managed just like card payments, however, credit solutions remain very much single country specific.
What are the challenges for retailers?
The first and most obvious challenge is for those retailers not yet offering customer credit options. They are now at a competitive disadvantage. Apple, eBuyer and Dixons offer instalment credit, so it’s not surprising that John Lewis have recently introduced financing too. For many big-ticket purchases, consumer financing has become instrumental to winning the sale.
Beyond the initial introduction of a finance solution, there are several important considerations. How many customers will be declined? How many will abandon the application process? How long will it take to serve customers in-store? How can retail finance be part of a great user experience? What about mobile? Does finance encourage or prevent showrooming? Can finance be used to build brand loyalty? How can retailers manage the ethical, reputation and regulatory risks that are part and parcel of offering retail credit?
How fintech can help
Of the five big high street banks that dominate the UK business and consumer banking market, only one currently offers retail finance. Hence several challenger banks, peer-to-peer and specialist lenders have entered the retail credit market in the last five years. It’s surely just a question of time before one or more of the big banks enters the market. Increasing competition is benefitting merchants and their customers. The investment is bringing innovation back into retail finance.
Here at Deko, we believe that retail credit technology can be a great solution to the challenges merchants face in attracting customers and creating loyalty. We believe that empowering customers to shop using the right credit products has a positive outcome for everyone. And we believe that when you use technology to help consumers make great buying decisions it will strengthen their relationship with your brand.
Download our Credit Revolution Whitepaper for more stats and commentary about the changing face of consumer finance.