Why responsible credit is the foundation of sustainable retail


By Therese Byrne, Commercial director, DivideBuy

At a time when a perfect storm of economic pressures from inflation, rising fuel costs and supply chain restrictions are driving up the cost of living for people at all levels, more people than ever are looking to spread the cost of purchases flexibly, and consider point-of-sale financing to help make finances more manageable.

POS financing is the reinvention of an old form of credit lending, a payment solution that allows consumers to defer payment or pay with interest-free credit installments. It has become an easy and popular way to split the cost of previously inaccessible purchases into smaller, more manageable chunks: POS financing has revolutionized online shopping in recent years: the number of customers using these services has grown from 100,000 in mid-2016 to over 5.6. million today.

The reasons for this rapid adoption are manifold. With today’s technology, with frictionless one-click purchases both in-store, online and through mobile apps, consumers have the flexibility to pay in the way that suits them, with affordable refunds that help them take control of their finances. At the same time, these LendTech solutions provide merchants with new ways to connect with customers and leverage data-driven marketing insights that can propel their business into the stratosphere.

Dispelling Debt Myths Around Point-of-Sale Loans

But amid this skyrocketing popularity of POS financing, debate rages on whether it really works in the best interest of the consumer. Disastrous headlines tout that interest-free credit and other forms of payment financing are leading to increased consumer debt, that POS finance providers and merchants intend to promote reckless spending without worry about the impact on the individual. But these attitudes are often the result of a lack of awareness and confusion, with many consumers and merchants not fully understanding what POS financing is and what it offers.

With so many misconceptions surrounding the use of POS financing, and in an effort to cut through the noise, I want to help demystify POS financing and change the perception of it as a scary and irresponsible debt-generating monster. , for what it really is – a useful and flexible budgeting tool, which can help consumers with their financial management and be a vital aid for merchants looking to streamline checkout journeys and increase revenue.

It’s not just millennials who love POS credit

Numerous media reports have portrayed point-of-sale loans as the villain in the world of consumer credit, tricking unsuspecting consumers into debt, tricking them into buying items well beyond their budget or making reckless impulse shopping for fast fashion or tech gadgets. One of the most common misconceptions about point-of-sale financing is that it’s primarily millennials and Gen Z consumers, with a rampant appetite for instant gratification, who are driving its growth. attracted to impulse buying the latest gadgets and Instagram-friendly fashion. These negative connotations are unfair.

Yes, it is true that an increasing number of young consumers are using point-of-sale financing. But the real reasons have more to do with young consumers’ aversion to traditional interest-bearing loan products like credit cards.

These misconceptions also ignore the reality that interest-free credit is used, and used responsibly, by consumers of all income groups, including those who already have strong credit records and simply want more choice. in how they pay for their purchases. The flexibility of POS financing means it’s used to pay for everything from couches and home improvement projects to weddings and even vet bills.

Interest-free credit, offered in a transparent, ethical and regulated way, can support people throughout their adult life cycle, at different life stages, in such thoughtful and informed purchases.

Merchants can reap rewards, but must avoid the pitfalls of point-of-sale financing

Point of sale financing can solve many problems. In addition to making purchases more affordable for shoppers, it also has direct and immediate benefits for merchants: reduced customer acquisition and administration costs, faster customer onboarding, increased payment conversions and rates. much lower cart abandonment rates.

Pitfalls can arise when merchants seek to partner with lenders who provide lines of credit to the customer. Some lending solutions often have high interest charges and hidden fees in place, working in the interest of the lender but not the customer.

The lack of distinction between regulated and unregulated lenders further adds to the confusion surrounding POS financing and can create costly complications for merchants and their customers. When traders select lenders, they should ensure that the lender is regulated by entities such as the Financial Conduct Authority (FCA) in the UK, which apply strict criteria to authorized lenders to ensure that they comply responsible lending practices. At DivideBuy, we champion the need for regulation in our growing industry. Not only does this protect both consumers and merchants, but it helps merchants build trust with their customers.

Consumer credit agreements provided by lenders often come with a confusing list of terms and conditions, which can be difficult for consumers to interpret. Merchants should work with their lenders to make sure these agreements are as clear and transparent as possible, so consumers know exactly what they’re getting into, how much they’ll be paying, and avoid getting into debt.

A Rigorous Credit Approval Process Will Eliminate Chargebacks

Interest-free credit helps merchants reach more customers because merchants bear the cost of interest on behalf of their customers. You would think it would be a no-brainer to attract more customers and increase profits, but with many businesses struggling with tight profit margins, the choice of lender needs to be considered very carefully.

Merchants generally pay a percentage-based fee for each consumer transaction, and there may be additional fees payable to the POS financial lender. Businesses with razor-thin profit margins could face lost profitability if they end up with a lender that extends credit to delinquent-prone consumers, who rack up purchase after purchase, with no effort to make repayments.

While it is true that most POS finance providers will charge consumers late payment fees, this does not help the merchant, who now has to deal with lost items, late refunds and even thinner profit margins. And quite simply, any company that relies on penalizing consumers to generate its revenue is simply not ethical, nor sustainable. It’s another way DivideBuy is setting itself apart in the POS space, by completely removing late fees for consumers, only charging fees to merchants, and we don’t make any profit from customer data. .

It is in no one’s interest to have financially failing customers or customers with affordability issues. This is why it is so important for POS finance providers to undertake rigorous due diligence on credit applicants, to help consumers make informed and considered purchasing choices based on affordability.

At DivideBuy, our whole philosophy is to empower consumers with flexible buying power, and we look at the individual’s past and present circumstances to get the clearest picture possible of their financial health. When we review credit applications, we use Soft Search credit checks which will not harm the applicant’s credit score. Our extensive affordability checks and highly efficient automated underwriting process mean we have a default rate of less than 3%, which is far lower than our competitors.

In fact, I joined DivideBuy in 2022 precisely because I was so impressed with its consumer-centric philosophy, which is at the heart of everything it does. Unlike other point-of-sale financing providers, our business model is not based on charging consumers late payment fees, but on helping consumers make informed purchasing decisions based on affordability, by offering repayments over longer periods, deposit weightings and payment holidays.

Responsible lending for sustainable businesses

In conclusion, with so many myths surrounding point-of-sale financing, there is a need for ongoing awareness and education to ensure that consumers and merchants are able to make informed decisions about how to pay or provider to use.

As with any other form of credit, there are pros and cons to using POS financing. There are risks for consumers, merchants and lenders. There needs to be consumer accountability in how point-of-sale financing is used. But when used correctly and responsibly, it can be an incredibly convenient and useful way to make managing life’s big purchases easier.

As an FCA regulated lender, DivideBuy puts the consumer at the heart of our business, and we are committed to driving the change we want to see in the industry, ensuring consumer lending practices that are fair, ethical, accessible and no fees that work for both consumers and merchants.

Raising awareness, screening customers who may be in arrears, and ensuring credit approvals based on rigorous accessibility checks will go a long way to bolstering the reliability of these solutions.

By working together, engaging in dialogue, and making POS funding as clear and transparent as possible, regulators, LendTech providers, and merchants can ensure that consumers receive the education and protection they need to use the POS financing the right way.


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