Point of Sale (POS) financing was traditionally considered to be a revolving line of credit, either in the form of private label store cards or general credit cards. The POS financing model is increasingly being seen as one of installment loans, and top tier banks and lenders are looking to offer this option. Here is a recap of the major benefits:
- POS loans are able to provide contextual loan information that regular credit cards are not able to, such as goods purchased and clearer repayment terms. The lender is able to carry out a more dynamic risk-scoring process to allow for higher approval rates and lower default rates.
- POS loans provide lenders with another way to offer credit separately from credit cards, currently losing popularity due to a growing aversion to plastic cards and high APRs. The benefit is acquiring new clients to whom you can then cross-sell other banking services.
There are currently three options for a lender entering the POS lending space:
- Branded installment loan program: By producing your own branded installment loan program, available at the point of sale. The most successful example of this is Citizens who are the exclusive finance partner for iPhones bought directly from Apple. With more than half of all iPhone buyers opting for financing plans, Citizen’s Apple portfolio has grown from zero in 2015 to approx. $1 billion in 2018. While there is a lot of potential in this approach, it requires major integration with the merchant’s point of sale.
- Partner with a payment issuer: For example, Visa who are offering a new installment loan facility on existing cards on their Visa Next platform. This will also require each merchant to undergo a process of integrating into the bank’s program.
- Installment loan facilitator: Collaborate with a specialty fintech operation who will act as an installment loan facilitator. This way, you are focusing on your biggest strengths which are merchant and borrower risk underwriting, offering an exceptional loan program, but without the need to input heavy resources into merchant integration. For more information, click here to read how Jifiti does this.
Partnering with an installment loan facilitator such as Jifiti allows us to scale your loan business and design the platform features according to the merchant’s brief. This will give you as the lender, the ability to focus on creating a complete POS loan program, presenting the following important features to help you attract merchants:
- Build an umbrella program in order to be able to turn around a quote for a preferred merchant within a couple of days.
- Offer retailers a ‘proof of concept’. With Jifiti, merchants don’t need any integration or IT resources, resulting in the ability to onboard merchants fast and easily.
- Provide a self-service onboarding platform for retailers. Jifiti’s platform supports this functionality, allowing retailers to complete an online application and be approved to offer your loans to their customers immediately.
- Ensure that you have flexibility and diversity in your loan program in order to be able to work with high ticket and smaller items. Work within all verticals, and consider tangible and intangible goods such as travel and home improvement services. Provide loans with short repayment terms and those with longer repayment terms.
- If your loan acceptance rate is low and you are only happy to work with prime applicants, it is recommended that you work with a facilitator who can complement your lending service by cascading to a second look lender if a customer’s loan application is not approved by your institution. You will be able to maintain business with the merchant even if you don’t approve and deliver all loans.
- Merchants are nervous about needing in-depth integration into their systems and accepting ACH from the lender, in order to offer POS loans. Lenders who can promise a service that is as friction-free as possible are at an advantage to win the merchant’s business.
Need more assistance? Let us know how we can help. Feel free to reach out to our General Manager of Consumer Financing directly at nufar@jifiti.com.
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