The checkout finance landscape can be extremely confusing - both for merchants who have experience offering their customers flexible finance options and for those who are new to the space. There is a plethora of choices when it comes to solutions - with different providers, products and features all promising to deliver better acceptance rates and purchase journeys. But, merchants must take a step back before evaluating and comparing solutions. They need to think about their overarching objectives and what they want to achieve as a result of integrating with a checkout finance solution and the tactics they’ll need to undertake to ensure they reach these objectives.
If well considered, your strategy can do it all, commercial growth, boosting sales, but also improving customer experiences and satisfaction.
We’ve put together this two-part series to help you consider key elements of a successful checkout finance strategy. In part A, we’ll explore three pivotal questions that should guide your decision-making process.
What products do you sell?
The price points of your product range are a highly important element of any checkout finance strategy. This is because the maximum repayment period that you’ll need to offer your customers will hinge on whether you sell low or high-cost products (or a combination of the two). It doesn’t make sense to allow your customers to spread a £50 purchase over 24 months, and vice versa, you shouldn’t expect a 3-month loan period to empower them to make a purchase that costs £1000s.
Another important consideration when it comes to the types of products you sell is their profit margins. This will influence whether you offer interest-bearing or interest-free options to your customers - as the fees that your partnered lender(s) charges will possibly eat into these margins.
Interest-free finance is more attractive to your customers but lenders will charge you a subsidy fee for the provision of these loans, with the longer the repayment period the higher the fee. On the flip side, interest-bearing finance may be cost-neutral, meaning you pay no subsidy fee to the lender as the customer ‘pays this’. There is an in-between, where the APR that the customer pays isn’t high enough to cover the lender’s fees, so you’ll need to pay a fee (albeit a smaller one) as well.
Who are your customers and competitors?
You may be asking why you’d offer interest-free finance at all regardless of your profit margins. Well, who your customers are, their behaviours, along with what your competitors are offering, are all reasons you might want to consider choosing an interest-free product.
If you’re in a very competitive industry, where your competitors already offer finance, especially 0% loans, you’ll need to match their offering or face losing out on customers and sales. It is worth doing some analysis and testing to be able to gauge whether your customers are driven by price, as this loss of sales is likely to be even higher.
If you already offer finance and are frustrated by low acceptance rates, or if you don’t currently offer finance but anticipate that your customer base will have ranging credit ratings - then you should consider a multi-lender solution. At Deko, we offer a unique multi-lender Pay Monthly product which uses the principle of waterfall lending to automatically pass on rejected applications to a sub-prime lender whose lending criteria may be better catered to the customer’s financial needs. This can crucially improve acceptance rates, meaning more of your customers can complete their purchases through finance.
Yet, this isn’t the only way your strategy and solution choice can improve acceptance rates. Certain solutions and products offer additional features such as eligibility checker tools which are present at the start of your customer journey. These tools consist of a few quick questions that are then used to provide a provisional decision on a customer’s likelihood of being suitable for finance. The added transparency an eligibility checker delivers up-front can help reduce customer frustration and disappointment, improving their overall shopping experience.
Where do you sell your products?
Where you sell your products is important because different finance solutions suit different sales methods. Do you sell online, in-store, over the phone, or in your customer’s home? Because there’s a purpose-built solution for each one of these channels.
Most merchants will sell their products and services through multiple methods. They could integrate multiple solutions into their business operations, with each one dedicated to a specific sales channel. However, this will require a significant investment of time, both with administrative tasks and the general management of these solutions. It’s typically best for merchants to find a solution that is multi-channel compatible.
Along with Pay Monthly, our Newpay product can also be used both in-store and online. Newpay is a digital credit account that’s been produced in conjunction with one of the UK’s largest credit providers, Newday. After customers successfully sign up for this product, they’ll receive a revolving line of credit that they can use for repeat purchases without the need for any additional applications. It’s a product that delivers a seamless purchasing experience and which improves customer loyalty and lifetime value.
However, if you are more interested in offering your customers finance products and options that are hyper-specific to the sales channel and the purchase in question. Then you should look to partner with a platform that offers multiple individual products. This way, the amount of time spent on admin, development, and management is lower than if you decided to partner with a series of providers and brokers.
In part B, we’ll be exploring another three further considerations -
- What are the goals and aims you hope to achieve by offering finance?
- What do you care most about when integrating new checkout finance solutions?
- How much support would you like in optimising and managing this offering?