Store of the Future   //   April 18, 2019

Point-of-sale loans gain traction among retailers

Point-of-sale loans, or loans offered to customers at checkout, are quickly picking up pace among retailers. The latest is Mastercard, who this week acquired Vyze, a platform that connects customers shopping in-store and online to a range of different purchase financing options at checkout. Its customers include brands like Home Depot, Microsoft, HTC and Samsung, and Mastercard wants to scale it to other retailers, who pay fees to Mastercard to enable the service.

It’s a hot market: Point-of-sale loan startups, like Affirm, Klarna and Bread, are getting increased attention from funders: According to data from CB Insights, 9 point-of-sale companies raised more than $700 million between June 2017 and October 2018.

The Vyze acquisition is the latest among a series of point-of-sale lending opportunities that retailers can enable, on the heels of a recent Walmart program to give customers access to point-of-sale loans through Affirm. Mastercard said point-of-sale financing through loans offered through the Vyze platform have the potential to be a massive customer acquisition channel for retailers.

Retailers have traditionally pushed store cards at checkout — but they’re often a source of friction for customers and merchants. Customers who don’t get approved might abandon the purchase altogether, and retailers rolling them out might face a backlash from customers if they’re too pushy or if the terms are seen as unreasonable.

High-interest cards can be seen as predatory; with rising delinquency rates and reports of store employees being incentivized to promote them to customers, they can be a brand risk to the retailer. But with the advent of point-of-sale loans offered by third-party lenders at checkout, retailers give customers more choices to finance their purchases. It’s a win for retailers because it can result in less abandoned transactions, and it keeps their brand outside of the consumer-financing picture.

Merchants love it because now they don’t lose the customer,”  said Zahir Khoja, svp of global acceptance at Mastercard. “They can increase basket size and create loyalty with their end consumers. It gives lenders approval rates north of 80 or 90%, which they wouldn’t see today.”

As a result, instead of an awkward moment where customers who are declined may feel shy about continuing with the purchase, the customer gets provided a menu of available financing options. Mastercard wouldn’t comment on specifics of the types of offers that Vyze partners offer customers, but Affirm and Splitit start at no-interest options. Since the loan is between the customer and the lender, the retailer doesn’t take on the risk if the customer defaults on the loan.

“The main implication here is the ability to facilitate seamless acquisitions of rewards or miles for consumers without having to go through the typical steps of signing up,” said Moshe Katri, managing director of equity research at Wedbush Securities. “Theoretically, this should help merchants with new consumer acquisitions.”

It’s a model that’s yet to be tested in a post-recessionary environment, Leslie Parrish, Aite Group senior analyst, said. And while the potential to add financing options is a way to grow a retailer’s customer base, it comes with the risk of lending to people who may be rejected from a retailer’s store-card program. If the customer’s experience of the loan process is seen as sub-par, or if the terms are seen as predatory, the retailer risks tarnishing its image in the eyes of the customer, said Brendan Miller, former principal analyst at Forrester and currently head of global marketing at payments company Rapyd.

The opportunity for retailers with point-of-sale platforms like Vyze is to let lenders compete for customers’ business by offering the best possible terms — a move that, if done correctly, could elevate the retailers’ brand proposition among customers.

“Imagine a scenario where the customer [is] presented with three financing options at checkout, each lender would compete for the customer’s business and all the terms would be completely transparent,” said Miller. “The customer could choose between the private label program, Affirm, or a 30-day post-paid billing option. That would be truly innovative.”

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