Global e-commerce sales are estimated to reach $4.5 trillion by 2021. E-commerce financing, which gives consumers the ability to pay over time for items, aims to fill a much-needed gap within this market. Retailers want to make it easier to purchase big-ticket items online and consumers want simple and transparent ways to make low monthly payments.
The appetite for consumer credit is still very high. For starters, total consumer credit increased $10.2 billion in June to a seasonally adjusted $3.91 trillion. This translates to an annual growth rate of 3.1%.
If you manage an e-commerce site and are looking for a way to offer financing to your consumers, this article will help you unwrap:
- Why financing for customers works;
- Why it matters in today’s e-commerce landscape; and
- The checklist you need to determine the best partner for you.
Why offer e-commerce financing to your customers?
It’s helpful to remember why and how e-commerce financing can help retailers and their customers. First of all, e-commerce financing has many names. It can be described as point-of-sale financing, point-of-sale lending, pay-over-time financing, alternative financing, and “buy now, pay later”. No matter what you call it, the bottom line is that it has the power to increase e-commerce sales.
A recent survey from Square found that 84% of participants appreciate the flexibility to pay over time for large purchases and that average order size increases 15% among businesses that offer consumer credit. A study with jeweler EraGem also showed a 172% increase in year-over-year revenue that was attributed to financing.
Retailers now see what has been normalized for decades in areas such as car-buying. E-commerce financing provides consumers with greater flexibility and more purchasing power, which drives more sales and encourages long-term loyalty.
How does e-commerce financing work for retailers?
E-commerce financing isn’t exactly a new concept. Private label credit cards were introduced decades ago as a form of financing, incentivizing shoppers with discounts and the ability to buy now and pay later. But retailers’ dependence on physical cards and paper billing were built for a bygone era. E-commerce financing today is online, simple, and gives shoppers instantaneous access to pay over time options.
Retailers can quickly integrate financing through their e-commerce platforms. Financing can surface from product pages through checkout, depending on the technology being used. Customers can apply for financing and instantly see whether they qualify to pay for items in portions over time. Loan periods tend to range by financing provider, but can range anywhere from three to 36 months.
Once a customer completes checkout, retailers get paid up front and the e-commerce financing solution takes on the risk of non-repayment. Consumers don’t have to wait for a physical credit card to come in the mail or wait in line to see if they qualify for financing. E-commerce financing has streamlined the entire shopping experience to address the high speed of retail consumers desire.
How do I choose an e-commerce financing partner?
Financing partners are not one in the same. This decision is an important part of both your payments strategy and broader retail strategy. This comprehensive checklist will help you choose the best option for your business:
- Integration: How much of your time and resources are required to implement the solution on your website?
- User Experience: Does the solution fit seamlessly into your shopping experience, or are customers directed away to another page? Do customers have the option to choose different loan terms?
- Payment: How quickly will you receive payment for purchases? Will you or your partner take on the repayment risk?
- Customization: Can you change the look, feel, and tone of the solution to match your own?
- Data: Does the solution make data available that can help improve your business?
- Customer service: Does the solution offer high-quality customer service and loan servicing? And ongoing service for retailers?
E-commerce Financing: Taking the next steps
E-commerce financing is one of the simplest ways retailers can increase sales and build loyalty among your customers, particularly when it comes to big-ticket items—all without taking on additional risk.
Give our checklist a look and contact us if we can provide any other information on pay-over-time financing options that can help lift your e-commerce sales.