POS financing is quickly becoming the de-rigueur product at digital checkout these days. Financing really isn’t (or shouldn’t be) a one-size-fits-all offering for consumers. Nor does it cannibalize existing credit options, including private label cards, Brian Billingsley, NA CEO at Klarna, told Karen Webster.
Consumers have the power of choice when it comes to many things — where they want to shop, how they want to shop, which channel is most convenient for a purchase and even which payment method suits their transaction at any given moment.
But often not so much about the way that they can finance their purchases. When it does, it can often involve redirects, lengthy forms and unclear information.
Swedish payment processor Klarna has recently made news when it expanded the options and the channels that it makes its point of sale financing options available to.
Brian Billingsley, CEO North America at Klarna, joined Karen Webster to discuss those partnerships and the benefits that it believes its more streamlined financing options can bring to the consumer purchasing experience.
The Revolving Difference
Klarna announced its partnership with online mattress retailer GhostBed to integrate an instant financing solution into the merchant’s existing checkout system. GhostBed customers are now presented with two Klarna financing options at checkout along with the ability to purchase using their existing credit or debit card.
Billingsley explained that in the case of GhostBed, the revolving credit product provided by Klarna helps turn a one-time mattress sale to its customers into a customer who comes back to purchase accessories.
According to Billingsley, that’s possible because it enables eligible consumers to make additional purchases with that same retailer without having to sign up for another loan or go through the financing process all over again for each subsequent transaction made.
Either the new purchases can be added to their existing credit account or they can simply use a different form of payment for the transaction.
Billingsley noted that the financing solution also works without any redirect to an external URL, so the consumer remains on the merchant site and within the brand experience when signing up.
For a high-margin brand like a mattress company or merchants that make their own products, Klarna offers flexibility in the financing solutions that fit their business needs, such as offering 0-percent-APR plans for consumers while charging a higher merchant discount fee.
However, for merchants with thinner margins, options are available with higher APR plans and more affordable fees. It’s about picking the solution that makes the most sense to drive volume for a particular business profile from an economics and gross-margin perspective.
“We have the flexibility to fit the right product for the consumer, but also for the merchant to actually fit their business model,” Billingsley stated.
Financing For Consumer Segments
Klarna launched its financing platform in the U.S. in September 2015, and since then, Billingsley said the company has experienced many learning opportunities as it continues to expand within the market.
“When we introduced the try-before-you-buy or the invoice product, a lot of consumers loved it and got it right away, especially debit card users because money didn’t have to come out of an account until they really got the product,” he explained. “But for some demographics, it was almost too frictionless.”
Billingsley said this experience provided an opportunity for the company to really tune into the voice of the customer and use that feedback accordingly.
Depending on the customer segment and even the merchant itself, utilizing Klarna’s full checkout solution isn’t exactly what they need. Which is why, Billingsley noted, the company is pushing its payment APIs, which allow merchants to add Klarna’s proprietary payment solutions directly into their existing checkout.
By making a deep integration into a merchant’s checkout systems, the heavy lifting from a merchant perspective will be quite light, Billingsley said.
“We’re seeing our product sit well with merchants that like to add us next to their private-label programs because it’s a different segment of customers,” he added.
For example, an online retailer may have a brand advocate that spends at least four or five times a quarter, in which case Billingsley explained that a private-label program with the loyalty aspect might be the best financing product for them.
But in the case of there being a customer who’s new to the brand or not yet a brand advocate, having the payment option to break up a transaction over time can deliver the type of value that can help to build up that brand loyalty.
As for Klarna’s power users, the two biggest consumer populations are millennials and females in their mid-30s who are usually in charge of their family’s purchases.
Billingsley pointed out that many millennials today either don’t have a credit card or don’t like using one — their affinity for credit card brands and status is much different from previous generations. This makes millennials much more willing to use a payment option that allows them to break up payments over time for major purchases.
In the case of the young mother who manages her household’s income, also known as the Household CFO, she typically sees it as more convenient to make payments over time on a big purchase rather than putting a transaction on her debit or credit card.
“We’re finding that it’s attracting more customers — not just subprime or millennials — and serving a need across a lot of consumer segments,” Billingsley said.