Talk to anyone in the U.S. credit space, and they can tell you about their access to consumer information, such as name, income, education, voting record, mortgage and more. This data can be pulled from the IRS and credit bureaus — and all of that is just before companies make a cold call. They’ve got even more on consumers, who already have a relationship with the company.
Talk to anyone in the Canadian lending space, and they would be shocked at how much information the U.S. player can access. There’s no central registry of income or home ownership. There are no Social Security numbers tying consumers to all the information ever generated about them.
In addition to that, the regulatory environment is quite different from that of Canada’s closest neighbor. The country is provincially governed, and regulatory frameworks of the 10 different provinces must be factored in. Meanwhile, the entire market is only about the size of the state of California.
These are the reasons why point-of-sale credit solutions from the U.S. — and even from Europe — have not seen adoption in Canada, and they can’t and won’t unless they’re drastically adapted for that environment. It’s far easier for the country to simply come up with its own products.
That, at least, was the thinking for Flexiti, a Toronto-based startup providing online financing at the point of checkout in eCommerce environments. Flexiti Founder and CEO Peter Kalen explains how it works, and just how much of an impact offering credit online can have on ticket size for online retailers.
Retailers know they have a problem with cart abandonment. Many shoppers almost get there, filling their virtual carts with items, only to arrive at the checkout and walk away. This can be even more true for the types of purchases consumers are making with Flexiti’s customers, Kalen said, most of which are selling high-ticket items, such as furniture, jewelry, appliances or electronics.
In the physical retail world, merchants have a face-to-face opportunity to discuss financing options with their customers — and to do so early, giving customers the freedom to shop safe in the knowledge of their credit limit and payback terms.
In the virtual retail world, Kalen said cart abandonment can often be due to the overcomplexity of checkouts and can also be related to payment methods offered (or not offered) — and here, there is no human interaction to counteract those abandonments.
His solution? Layering in a financing solution to give eCommerce merchants the same power that their brick-and-mortar counterparts wield — namely, the ability to extend customers an opportunity to finance the purchase by replicating the same advice Flexiti would give customers in the physical world, but translating it for a digital space.
Customers who know they have credit and the time to pay it off spend more, said Kalen. The average ticket size for one of Flexiti’s partners is $3,000 — but when customers find out they can access a certain amount in credit, they can easily spend 50 percent more, he said, either by choosing a higher-end version of what they came for or by adding more items to their carts.
The simple equation there is that flexibility drives spend. However, Kalen said there’s an art to delivering that flexibility.
Customers must learn about it early in their shopping experience. Maybe that’s in the form of a banner ad on the homepage informing customers that they can apply and get approved for financing before they even start filling their cart. Maybe it’s displaying prices that exceed a certain threshold — say, $500 or $1,000 — as broken down into 12 or 24 equal payments.
Whatever the case, Kalen said it doesn’t do the retailer any good to present financing options at the moment of checkout. Even if it helps the customer, it comes too late to encourage any additional spend. The idea is to do it in a way that simultaneously benefits the shopper while also feeding into the retailer’s bottom line.
Speed and Security
Two pillars of the eCommerce world are speed and security. Retailers and the platforms that serve them are constantly striving to strike that perfect balance between creating convenience for the customer while also ensuring his data is protected from fraudsters.
With big ticket items, Kalen noted, customers are willing to put up with greater friction and a slower experience because they perceive it as being for their own good, whether online or in-store.
A mortgage can take three days of paperwork, he noted; a car can take a day. Purchases like HVAC units, windows, doors, washers and dryers, which are not so time-sensitive, therefore have some leeway in terms of speed as well.
But that leeway isn’t infinite. The application and approval process can’t take all day, or customers will just get fed up and put the lower-ticket purchase they originally intended to make on a credit card. Kalen said a quick turnaround is necessary both in-store and online, and while some of the same principles can be applied to both, they are different beasts in need of different solutions.
For instance, eCommerce merchants can’t check a customer’s ID, so they must supplement identity verification with other methods. Additional security questions can help replace the ability to look at a shopper’s ID and avoid dealing with fraudsters who are stealing or assembling synthetic identities.
The Inevitable Challenge
Revolving credit comes with its own built-in challenge: What if people don’t pay it back?
Kalen said that, in some ways, that’s just part of the business. The company can call and send emails or letters reminding customers to pay. If they don’t, then it affects their credit rating — but there is really no recourse for Flexiti or the merchant to get that money back.
However, the CEO said this challenge hasn’t actually posed much of an issue for Flexiti. Part of that is cultural, he said: Canadians tend to be very conscientious about paying their bills. But another big factor is that customers can simply pay the minimum amount each month to stay current, just like they would for any other credit product.
Kalen said Flexiti was seeing only single-digit loss rates in line with the startup’s expectations and the experiences of its peers.