By Doug Filak
When making such major life purchases as houses and cars, consumers usually have access to financing. But what happens when they seek flexible payment options for other high-ticket items?
Today, most retailers don't offer financing to their entire customer base even though recent research shows that offering financing to a broader demographic of consumers can close more sales, significantly improve the customer experience, and inspire loyalty that results in repeat business and reduced retention costs. Driving awareness of this "financing gap" and helping retailers find a way to close it can have tremendous benefits for everyone.
Currently, across high-ticket retail sectors — furniture, electronics, appliances, home improvements, car parts, specialty goods and jewelry — only 11 percent of the more than $1.7 trillion in total sales volume (across those sectors) are currently financed. Many of these sales come via a retailer's store card or other primary financing program, but these programs turn down roughly half the applicants.
Today's consumers seek choice and control when making purchases — not just in what they buy but also in how they pay. A 2015 survey of more than 2,000 consumers showed 42 percent would be more likely to shop at a retailer that offers financing beyond major credit cards.This is particularly true for millennials (those 18-to-34-years old), over half of whom (55 percent) said this was the case.
By offering financing to only a limited consumer segment, retailers could be losing sales at an alarming rate. In fact, 33 percent of customers who were denied financing by ecommerce merchants and smaller retailers abandoned the purchase completely, while another 35 percent of customers either scaled back or delayed the purchase.
When retailers do offer their customers a variety of financing options, they are likely to demonstrate increased loyalty. Nearly two-thirds of past users of store financing come back and finance at least one additional purchase of $500 or more and 33 percent do so three to five times within five years.
So if there is so much opportunity, why aren't more retailers doing it? Providing financing options to every customer, no matter where they fall in the credit spectrum, can be a challenge — but not one impossible to overcome.
Assembling — and retaining — suitable lenders is one side of the problem and implementing the technology is the other. Lender relationships tend to be fluid as lenders modify their thresholds, underwriting terms or financing capacity—that is, if they don't change ownership or exit the business. Therefore, making it simple to integrate lenders, get up and running, and make program changes without disruption if lenders alter their underwriting or lending capacity is invaluable to the long-term success of a financing program.
Most importantly, from a consumer perspective, retailers' technologies should employ omni-channel capabilities to serve customers in-store, online or via any connected devices, with low-friction application and purchase processes. Convenience and speed are essential, since 33 percent of consumers apply for financing on the same day they want to make a large ticket purchase. And given research shows consumers abandon a purchase if declined for financing, a single application should be able to run a customer's details through a network of lenders and financing options and provide an instant offer — with additional offers automatically if the initial lender can’t meet customers' needs.
In addition to in-store application options, most consumers look for a simple online application before shopping online or in-store. A recent survey found that 44 percent of those seeking financing value that feature. Again, this rings particularly true for millennials, more than two-thirds (67 percent) of whom said that an online application would be "very important" or "somewhat important" to them.
Offering multiple lending options does not need to complicate the sales process or come at an immense cost, whether retailers build their own platforms or partner with an outside firm.
By providing flexible financing to multiple customer segments via simple-to-use, state-of-the-art technology, they can improve the customer experience, igniting future sales growth and nurturing loyalty.
Doug Filak is Vyze's chief marketing officer.