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What is retail finance?

November 7, 2022

Retail finance unlocks a wide range of opportunities for your shoppers, allowing them to spread the cost of purchases. Customers enjoy flexibility, affordability and more choice for how they pay, while merchants can increase average order sizes and increase revenue. But what do we mean by “retail finance”? That’s the purpose of this guide, which has all your business needs to know about retail finance.

What is retail finance?

Retail finance is a form of lending (from the merchant) and borrowing (from the customer) so shoppers can spread the cost of their purchase, either by payment instalments or credit facilities. This makes it easier for customers to afford the cost of items and gives them more spending power to make the purchases they want. 

Retail finance is particularly popular because of growing customer demand online: 82% of the population bought at least one item via this channel in 2021, while eCommerce now accounts for 30% of the total retail market. 

Retail finance tends to be more affordable than credit cards, which usually have high-interest rates. It’s also often more flexible in terms of repaying the balance, with shoppers given options for how and when they pay back the amount borrowed.

How does retail finance benefit businesses?

  • Loans agreed between the customer and retail finance provider
  • Payment up-front and in full for merchants, leaving cash flow unaffected
  • Reduced admin 
  • Repayments are handled by the retail finance provider
  • Larger average order size
  • Fewer checkout drop-offs
  • More revenue
  • Increased customer loyalty

Using retail finance for your business opens up many possibilities, and there is no direct impact on your cash flow. Loans are agreed upon between the customer and loan provider (your finance partner), meaning your business receives payment from the lender upfront and in full. You also will face less administrative work and won’t have to worry about collecting payments because the retail finance provider handles the process.

Instead, you can focus on the benefits of retail finance, such as larger average order sizes, fewer checkout drop-offs and increased revenue. Customers have more financial freedom with retail finance and feel more confident about spending. Moreover, you can increase customer loyalty by offering a broader range of payment options and providing shoppers with their preferred payment method. 

How does retail finance benefit customers?

  • Lowers barriers to entry
  • Allows customers to spread the cost
  • Zero interest with some finance products
  • Alleviates financial burden
  • A more flexible way to borrow than traditional credit cards

Retail finance reduces the barrier to entry for many customers buying products. Being able to spread the cost of payments gives them more confidence and flexibility to buy big-ticket items like TVs and computers or jewellery, furniture or even health and wellbeing. With retail finance, you increase the accessibility of your products and services. 

UK consumers are also currently suffering from a cost-of-living crisis, meaning shoppers are more cautious about spending their money. Offering them flexible and alternative payment methods through retail finance can help them navigate the current financial climate and avoid the cost of paying for an item all in one setting. 

Customers who take advantage of alternative payment methods, such as buy now pay later (BNPL), can also better manage their finances and borrow more responsibly. Many flexible payment options don’t have interest and provide a more manageable way to pay back the cost of a product.  

Different types of retail finance available?

0% finance

With 0% finance, customers can spread the purchase price of a product or service over several payments without incurring any interest. Offering 0% interest finance is a smart way to give customers an affordable option to purchase items immediately without the shopper needing to pay any interest on the amount borrowed.  

Finance with interest

Not all retail finance is interest-free. Interest-bearing loans such as digital credit accounts and longer term financing options may not be as attractive to customers. But, they often offer more flexibility in terms of deposit amounts, repayment periods and instalment sizes. Plus, merchants typically don’t face any fees for offering this type of finance.

Buy now pay later

Perhaps the most well-known form of retail finance, buy now pay later sees customers borrow a specific amount and pay it back over a set amount of repayments, usually in three or four instalments. Credit limits on BNPL vary, but most have a maximum amount of £2,500. 

How retail finance works for your business

Setting up retail finance is easy, with the right finance partner often doing the heavy lifting. They’ll integrate their product with your eCommerce store, or even your in-store channel. Typically, you’ll be able to view purchases made through finance on a back-office platform. 

Providers should offer you a dedicated account manager who can help you maximise the offering and resolve any issues that crop up.

What should I look out for when choosing a retail finance partner?

Your retail finance partner should provide a seamless and fluid service designed to attract – and accept – customer applications. The best retail finance providers offer flexible finance products so merchants can give their shoppers a choice when it comes to paying for products and services. 

An excellent retail finance partner also needs to offer an efficient service, setting the merchant up quickly, so they're ready to provide finance to customers. Your chosen retail finance partner should also offer full support and cater to the major eCommerce platforms, such as Shopify and WooCommerce.  

Who offers retail finance?

Deko offers merchants a range of retail finance products, which helps increase average order size and boost revenue. Our multi-lender product provides a panel of lenders when a shopper applies, which increases their chances of getting accepted for finance. 

The Will I Qualify tools further enhances confidence by giving your customers a chance to see if they're likely to be accepted by checking eligibility. And with speedy integration and extensive merchant support, we can have you up and running with retail finance in no time. 

Powering your business with retail finance

Offering customers retail finance gives them more ways to pay for your products and services. This allows the business to grow, with shoppers able to enjoy more spending power and feel confident because they can spread the cost of purchases. 

Learn more about retail finance and Deko.