Point of Sale Financing – With A Twist

Why did Goldman Sachs just put a big pile of cash into Financeit? According to Michael Garrity, Co-founder and CEO of Financeit, to fill an unmet need in what he calls “point-of-sale finance.”

“The point-of-sale finance space is in desperate need of better solutions for merchants, and fairer, more transparent financing options for consumers,” he said.

Point-of-sale finance is a category that Garrity says is a bit under the radar and clearly underserved. Triggered, in part, by a homeowners’ need to finance a home improvement project, it brings the service provider – the SMB contractor – and the consumer together in a way that gets the job done, so to speak.

“If you think about point-of-sale financing as a category,” Garrity tells MPD CEO Karen Webster, “for us, the idea is to put an innovative offer out to a set of merchants that’s easy for them to use and administer, in a very complex world of offering a banking type of solution through a non-bank front end, if you will.”

He contends that all a contractor or a remodeler or interior designer wants to do is to close a deal, they don’t want to know, care to know or even need to know everything about the implications of Dodd-Frank, the implications of the CFPB, guidelines regarding UDAP, and all of the things that they’d have to know to offer a non-card credit solution. Garrity sees Financeit as a tool that helps that part of the market increase their revenues without having to know all of the complex nuances of the regulatory world and their obligations inside of it.

And without the consumer having to rely on cards or other means to finance the project.

Garrity contends that Financeit’s solution “empowers merchants that are selling in our categories — home improvement being the largest one — with a tool that guides them through the ability to get their client into a payment plan that’s reasonable for them and really simple and easy for the merchant to use. Then it can become part of their payment mix, in the same way as debit or credit card can.”

While acknowledging that, for example, remodelers who may not be equipped to accept credit card payments but still want to be able to offer a financing solution are part of Financeit’s market, Garrity tells Webster that most of the merchants his company works with today can accept credit cards — the issue is that a lot of those merchants’ customers don’t pay them using that method, because renovation jobs are very often big-ticket services and cards are not an option.

“Our average loan size for financing in our home improvement vertical is about $15,000. If a consumer can use a card for the purchase, for a merchant to bear the merchant fees associated with a $15,000 purchase is a big ask for them,” Garrity points out. “Oftentimes, they won’t allow the whole amount to go on a credit card — or if they do, they have to take it back to their shop and put the transaction through.”

With Financeit, a contractor or other service provider can turn their phone or table into a point of sale device that enables a financing option.

Point-of-sale financing.

Garrity adds that the solution is also, uniquely, free to the merchant. Nor does the merchant bear any of the finance risk. He tells Webster that “instead of paying 3 or 3.5 percent of loaded costs in accepting credit card payments, [merchants] can actually get their customers into a payment plan over a 60-month or 120-month amortization period, and they can do all of it within five minutes.”

The merchant gets paid the full amount for the transaction, and they do not participate in any of the interest payments that the customer would be making.

Garrity and Financeit’s inspiration is the vehicle industry.

While 80 cents of every dollar spent in the vehicle industry goes through a sales-finance offer to the end consumers, he explains, in home improvement, by contrast — which is also a big-ticket service that needs to be budgeted around — only 10 cents on every dollar goes into sales-finance offers … a revelation that Webster remarks is “stunning.”

“Our job,” says Garrity, “is to capture as much in the home improvement industry as there is in the vehicle industry. The consumer can better budget through an offer that makes sense for them, and the merchant can close more business because they can offer, in essence, a budgeting tool for big-ticket jobs.”

The home improvement industry continues to lag behind the (otherwise financially comparable) vehicle industry, Garrity attests, because it is simply “a hard-to-reach market.”

He describes the contractors that Financeit is after as being “often out in-field; they’re in people’s homes, giving them estimates … there’s a lot of paperwork involved; there is no unifying technology that plugs into multiple banks; the banks aren’t set up to reach this hard-to-reach part of the market. There are myriad challenges and obstacles that have really limited the amount of sales finance that’s available inside this community.”

But not anymore, according to Garrity, who says, “That’s our innovation. That’s what we do.”

“We have created a cloud-based, mobile-based platform,” he explains to Webster, “which is dead simple for contractors to be able to get using to power their businesses. There’s no paper or physical signatures; and on the back end, we’ve recruited financial institutions that want to get their balance sheets to work in this very hard-to-reach part of the market but don’t have the technology wherewithal to do it themselves.”

“That’s the ecosystem that we’re building on our platform,” states Garrity.

And it’s a platform, he tells Webster, that has already recruited over 4,000 merchants. Financeit increases the flow of business “more than 100 percent year over year,” attests Garrity, “and [has] for the last five straight years.”

Additionally, the company has processed more than $1B in applications that have come from its target merchants — which is “focused almost entirely,” Garrity notes, in its Canadian business: Financeit is headquartered in Toronto and has started by focusing on the Canadian marketplace.

Over the last year, though, the company has expanded its platform into the United States. Garrett shares that Financeit has “just concluded an initial beta with a few financial partners and a few merchants in a few states.”

“The key for us,” he tells Webster, “was to start small, [to] really make sure that our workflow and our risk engines and compliance frameworks were intact and ready to serve a very complex market, but very big market in the United States.”

“Following our Goldman investment round,” Garrity concludes, “we’re now in the process of putting scale to that U.S. business, like we’ve already seen in our Canadian business.”