In the roughly six decades the card networks have been powering payments at the physical and digital points of sale, it’s hard to imagine that their ubiquity wasn’t always a given. The 1.0 version of card-based payments at the physical point of sale was far more fragmented and much more merchant-centric. What the card networks brought to retail point of sale, ChargeAfter Founder and CEO Meidad Sharon told Karen Webster in a recent conversation, was a standard that turned the point of sale into an access gateway for multiple issuers.
The world of point of sale financing today looks a lot like that 1.0 fragmentation in that pre-card network world had, he noted. Consumers like the option of installment payments at the point of sale — $400 billion in the U.S. alone and the growth in usage all around the world across demographic segments makes that point pretty obvious, he noted.
“A consumer’s only option is whatever lender or provider the merchant has chosen to offer. And it either works for them or it doesn’t,” Sharon noted.
And oftentimes, he noted, the answer is, it doesn’t. Approval rates, where approval is defined as an installment option being extended to a consumer, range from 30 percent to 50 percent as an average. That means that many customers are turned away; others even if they qualify, he noted, may or may not like the offer they’ve been given.
ChargeAfter, he noted, is an attempt to kickstart the 2.0 version of POS financing by taking a page out of the card network’s acceptance playbook: When consumers are choosing a financing deal at checkout, they don’t face a binary take-it-or-leave-it choice of a single installment provider if they are even given an option. Instead, they are presented with a single “buy button” that matches them with a marketplace of lenders who bid for their business.
This network approach, Sharon told Webster, is needed to ignite and scale the installment market at the point of sale and also why it recently attracted a strategic investment from Visa.
Capturing Choice At The Point of Sale
There isn’t a single “right” choice for consumers when it comes to financing because what is right in any given situation is going to vary by customer in context. ChargeAfter, he noted, doesn’t want to be in the business of picking between lines of credit and installment payments, or choosing a single target demographic range to serve because the opportunity in the vertical is bigger than that.
“Each lender is only hitting at part of the puzzle here, and each lender tends to focus on a specific thing,” Sharon explained.
ChargeAfter is taking all those parts of the puzzle and integrating them into a single marketplace that improves the odds that a consumer will be given an installment payment option at checkout. Like most POS installment options, applying is a matter of capturing the standard verification data set — income, address, mobile number, Social Security number, etc. — at which point ChargeAfter assembles a profile and runs it against their lender network.
A few seconds later — one to five on average — ChargeAfter’s network presents the consumer with a list of tailored offers from lenders and lets the consumer decide which is the best deal for them. Instead of a one-size-fits-all, love it or leave it financing option, consumers instead pick a personalized financing offer built around their choice, he said.
The merchant, on the other hand, gets to harness the benefit of offering all those options, and the improved conversion rates and basket sizes come along with a successful financing deal being struck, without having to engage in a host of individual integrations with a lot of lenders.
The Power Of Unified POS Financing
What primarily drew Visa to a partnership and venture investment with ChargeAfter, Sharon noted, is that it is operating in a growth industry in a world adjacent to what Visa does, but not directly connected to it. While enthusiasm for installment financing at the POS may have started with millennials and Gen Z shoppers, he said, it has quickly moved throughout all demographics. A strategic investment from Visa gives Visa an entry point into a POS lending space that it isn’t in today in a way that is consistent with its business model — enabling its network of issuers and merchants to grow transaction volume and sales.
With transparency and choice, Sharon noted, there is more competition from lenders to produce better offers for consumers and build ever responsive products and more opportunities for merchants to make sales. That’s good for everyone in the commerce ecosystem, and it is an improvement that can’t happen while the POS financing world is as fragmented as the world of card payments was before the network model was introduced 60 years ago.
“If we can get all of these networks ignited, we will really start to see a real ecosystem growing up around POS financing going forward.”