To support merchants during the cost-of-living crisis, retail finance providers must prioritise the end-user’s needs. New tools that focus on matching loans to a customer’s affordability help to do just that. Gaz Lloyd-Owen, chief product officer at Divido, explains how.
Fintech is changing. Today’s consumers look for the best experiences and are more open to trying new things and less likely to accept that the way things are done is the way they should be done.
According to PwC, 73% of customers now say customer experience (CX) is the number one thing they consider when deciding to purchase from a company. In addition, 80% of organisations now expect to compete mainly on CX. In other words, companies need to focus on the customer if they are to keep up with competitors and customer needs, let alone succeed.
For retail finance platforms, those who work with banks, lenders and merchants, that means building tools for the end-consumer. It means focusing on creating the best shopping experience, whether that’s in-store, online or over the phone. Consumers are the end game. If we can add value to them, we add value to the other parts of the ecosystem as well.
In a traditional retail finance transaction, you go to a merchant’s checkout, select finance as a payment option and complete a form. The lender will make a decision based on their risk appetite and the parameters they’ve set to determine a person’s creditworthiness. That includes your repayment history and credit score, but also your affordability.
Consumers are often declined for setting their repayments marginally too high, but a lack of information means they often have no idea. A £20 reduction in monthly repayments could be the difference between being accepted or declined.
So, customers apply for credit they think they can afford only to be rejected. They’re left frustrated, often angry, and harbour negative emotions towards each company involved.
It’s a bad experience for the consumer, it impacts the conversion rates and reputation of the merchant, and it’s bad for the lender because they don’t get the loan.
But there are new tools in the market that can provide guidance – or let’s say, education – to the consumer, to say ‘you may qualify for finance if you structure your plan differently’.
That could be a higher deposit today or a longer repayment term to reduce monthly repayments and make the finance plan more affordable. It’s like giving them a second chance.
These tools put the control back in the hands of the consumer, who often does not realise they can stretch the payments over a longer period. Maybe they have to pay more interest, but that makes the monthly payment a lot lower which means they can afford it.
That’s really powerful.
With the consumer more informed about the options available, they have more of an idea about what the lender is looking for. A small adjustment means the consumer can get the thing that they want to buy. So, it isn’t just about the user experience and how pretty or easy it is to use. Instead, focusing on customer outcomes means a higher conversion rate for the merchant, and more loan origination for the lender. The whole ecosystem benefits.
The important thing to understand is that a tool like this does not approve customers who are not eligible for credit. Optionality helps the consumer to close the transaction, but it’s also probably going to be in their best interest as well. It’s on terms that are more affordable to them rather than allowing somebody to access finance that might not be in their best interest.
For that reason, there’s probably not been a better time for products like these in recent years.
All three players in a typical retail finance transaction – consumers, lenders and merchants – have headwinds right now.
For consumers, it’s well documented. We know that inflation, the cost of living and interest rates are rising, which means how much they have left at the end of the month is going down.
But lenders are facing challenges too. As interest rates go up, so does the cost of borrowing. If the lender is not a bank, they don’t have customer deposits or balances to borrow from, which means they have to buy money they can lend. So, when interest rates go up, they pay more for the money they want to lend, which increases the cost of doing business, which they pass on to merchants.
Now, the merchants get squeezed because they have to pay more for their retail financing at a time when margins are already tight. That means they have less to invest in things like technology and gain a competitive advantage.
So, when the checkout finance ecosystem is squeezed, a tool that drives higher approval rates and better consumer experiences without costing any extra, becomes a real differentiator. Merchants need to be a bit leaner and more effective to try and move the needle in the most positive way. Finance Matcher can do just that.
Gaz Lloyd-Owen, chief product officer, Divido
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