Merchants Give Installment Loans Fresh Look as Consumers Seek New Payment Options

Depending on where you look, the economic signs are either positive or downright ominous.

Some firms, like Walmart, have seen continued growth in transactions across all categories, while other companies, like Target, have had to take deep discounts in a bid to move inventory.

Add to that the latest retail data that shows sales, including at electronics firms and furniture stores, barely budged in July and the view begins to get cloudy.

As we head into the all-important holiday shopping season, many management teams have pointed out that this uncertainty may see consumers reaching for the credit card less often as they once did.

Ed O’Donnell, CEO of Versatile Credit, told Karen Webster that simply accepting credit cards is no longer enough to land a conversion, saying that retailers have seen a shift in consumer behavior.

“They’re looking for more payments choice,” he said of a transition that is seeing consumers looking to take advantage of promotional financing, rather than using their own cash or capital to make significant, large ticket purchases.

A Credit Conundrum

At the same time, their desire for more choice is seeing a growing number of retailers facing a credit conundrum, where they want to expand their customer pools and close sales, but also need to do so with prudent risk management and underwriting in place.

He noted that a growing number of retailers and individuals have been coming to Versatile’s platform to integrate new financing programs and solutions offered at the point of sale and across consumers’ devices.

The potential for the personal handheld device or tablet to be used as a springboard for promotional financing is tremendous, he said, whether transactions are taking place in store or online. Consumers can pre-populate applications with their own data safely and with privacy, and the touchless transaction is critical to commerce.

Done well, as O’Donnell said, a financing program can act as a sales tool to help move inventory that is stuck on the proverbial shelves, can drive sales growth, and can, by extension, keep operations humming, workers employed and the U.S economy on a growth track.

To be successful, merchants need to reach consumers all the way down the credit spectrum, from prime to near-prime consumers, to those who want access to lending that does not require a credit check.

The opportunity is there to bring new options to end users. Credit cards, of course, have spending limits, and the debt that is in place, or that is added to current card balances, is becoming ever more expensive with rising interest rates.

The common thread is that these consumers, regardless of credit profile, want a predictable, affordable schedule of repayment, and don’t necessarily want to start paying the 24% APRs that are the hallmark of today’s credit cards.

“Most people try to limit the use of these cards to make unexpected purchases,” said O’Donnell. Thus, the door is opening ever wider to installment options, especially buy now, pay later (BNPL), that are proving attractive to any number of “consumer personas” — including money-savvy individuals who have credit available but do not want to tap it, at least not yet, although merchants are still seeing success with private label issuance of cards.

Targeted Financing

By providing targeted financing products at specific price points in one platform, O’Donnell said retailers can work with over 40 different lenders to provide consumers with these sought-after financing options. He explained that Versatile sits in the center of the lending ecosystem, with lender, merchant and consumer information, and can help merchants fine-tune their credit offerings on the fly.

These lenders span different verticals, as far-flung as healthcare or home improvement, and tailor their financing programs to match the purchasing behavior that typically marks those segments by creating special offers and promotions that help the merchants close the deal.

At the same time, consumers benefit, too, because they take on loans that fit their budget and that help them build credit as they meet repayment terms month over month.

“[BNPL] is a repeatable, predictable process that is intuitive,” he said, noting that the platform is also intuitive, and can aggregate the application and help consumers navigate the three or four best loan offers. It’s a self-service journey that also allows consumers to make decisions to accept payment terms on their cellphones, without any back-and-forth at the register.

Data, in turn, helps the merchants see which lending programs and promotions are most effective — and by extension, have seen as much as a 20% lift in overall sales.

Looking ahead, he said merchants are busy getting a broad range of installment programs in place — anticipating a surge in demand for installment option as they start to move into the holiday shopping season. Versatile’s technical engineers, he said, have various deadlines that begin around the middle of next month and extend all the way up until Black Friday. More stores are open, he said, and many retailers are anticipating heavy foot traffic through the fall and beyond.

“The merchant wants to have repeat business,” said O’Donnell, “and financing goes a long way toward determining whether that happens or not.”