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Point of Sale (POS) financing or lending has been around for some time, such as, when someone buys a car or a big home appliance. With the rise of e-commerce and technological advancements in recent years, POS financing options have only grown. So, what is POS financing and how does it benefit businesses and customers? Here is everything you need to know.
What Is POS financing?
A point of sale (POS) is where a customer makes the payment for the products or services bought at a particular store. POS financing is when a shopkeeper or retailer offers its customers a financial solution, usually in the form of consumer credit, at the point of sale. It may allow the buyer to apply for a line of credit for financing a specific purchase. Alternatively, it may allow them to buy items up to a certain credit limit from a particular retailer and make the payment over time.
POS financing products can be categorized as open-end or closed-end credit.
A traditional credit card is an example of open-end credit. However, when it comes to POS financing, some popular forms of open-end credit are store-branded cards and private label credit cards. Unlike traditional credit cards, these cards can be used only with a particular retailer. With a private label credit card, the tenure of the loan is undetermined. This makes the payment scope and amount more difficult to grasp for the consumers.
Closed-end credits are usually used to finance purchases of a particular product or service. The payments are usually split into a finite set of equal instalments. The payment obligations are more transparent in this type of financing and usually more customer-friendly compared to open-end credit.
With the growth of e-commerce, closed-end credits are becoming more popular as more retailers plan to offer diverse payment options to their online customers.
How Can Merchants Implement POS Financing?
POS financing can be integrated during a customer’s checkout in a simple way, especially when making an online purchase. The retailer can tie up with a lending institution such as a bank or NBFC. They can then offer a POS financing option to the customer anywhere throughout their shopping journey – from searching for a product to checkout. The tenure of the payment and the terms and conditions can be clearly laid out.
Once the customer agrees to the terms and conditions, the loan is approved from the concerned lending institution. The customer then directly interacts with the lender for payments instead of the retailer. The payment to the business is made by the lending institution.
Retailers can also make it possible for customers to apply for a POS loan in-store or via mobile phone as well.
The advantage of an online closed-end product over an open-end private label credit card or store-branded card is that, besides being transparent, it is quick and convenient for the customer which eventually results in customer loyalty and retention.
Benefits of POS Financing
1. For consumers, POS financing offers a more transparent, simpler, and convenient alternative to credit cards.
2. In an economy where people love to buy things, POS lending offers a simpler financing solution for purchasing higher-value products and services.
3. It reduces basket or cart abandonment for retailers while improving their conversion rates.
4. It improves sales for retail businesses. According to a study by Forrester Research, companies that implemented online POS financing saw a growth of 32% in sales.
5. It broadens the customer base for retailers.
6. It improves the image of the business among customers.
Challenges To POS Financing
There are certain challenges POS lending face in our country and in general.
1. Many retailers are not yet technology or internet savvy. Hence, they should be given enough technical and financial education to improve the adoption of this form of financing.
2. If the lending institutions are too dependent on only on card swipes by customers for repayments, then they run a risk of customers moving to a different service provider.
3. Not all POS providers follow robust KYC norms or onboarding processes at the time of machine deployment. They may also be unable to share personal data with third parties without customer consent. These may lead to the duplicity of KYC processes when sanctioning loans.
Currently, there is a visible gap between the number of registered retailers and POS devices deployed in the country. This signals a huge opportunity for growth of POS financing in India.