POS Lending

This type of lending is prevalent as a formal channel of lending in most of the established markets. In almost all other markets, this type of lending is existent as informal, ad hoc and circumstantial. The informal lending in most of the cases would happen at POS for the retailer, wherein one would want a loan to settle his/her purchases. The retailer would take into consideration the following factors before offering these kinds of loans:

  • How frequently did the customer visit the store and how loyal was the cus-tomer to the store?
  • What is the general economic status of the customer? This would typically be known as the borrower would be in the vicinity of the retailer.
  • Did the customer pay off the loan taken previously in a timely manner with-out coaxing?
  • The amount that was being typically borrowed by the customer. This was usually determined based on the capability of the customer to pay back his/her loans.
  • Finally, to maintain the transparency, the store owner would typically note all of this in a book as scribbled notes, which were time and again exchanged between the customer and retail store owner.

In a more formal setup point #1 would be replaced by KYC for the customer, points # 2, 3 and 4 would be equivalent to determining the creditworthiness of the customer and point #5 would be replaced by maintaining and reporting the account-related activities. This type of credit was traditionally offered to maintain customer stickiness (loyalty) and there was usually no interest involved. Though in some cases since the customer had less negotiating capability, because he was bor-rowing and there were not many alternatives, sometimes the retailer would charge for the purchased items at their will for a customer borrowing at POS. All these arrangements would be informal and would depend upon individual rapport that the customer has had with retailer.

Once the supermarkets started coming up, only the customers with enough cash to last throughout the month would visit them. Customers whose purchases or requirements for the month exceeded the amount they had, would still buy from their neighborhood stores on short-term credit. Large retail store owners realized they were losing business and customers by offering no credits, and therefore they soon brought in a credit facility that would now be availed at the point of purchase by swiping their credit cards. The credit taken by the customer on credit cards could be paid back in 21 days, while the store owner would get the payment within 3–4 days. This continued to be a great solution that was adopted until people started realizing that the experience of using and managing credit cards was getting out of hand. Also, the credit card companies were not offering loans on individual items purchased. Instead, they would provide loans on the entire credit card balance or an individual would have to avail a separate personal loan.

Owing to exploitation and ballooning disputes, multiple governments brought in compliance and regulatory checks on these loans, and in some countries even declaring this practice illegal. All of this led to less businesses authorized for issuing POS loans, and the cost overheads including the regulatory compliance led to increasing the overall interest rates charged for these loans. The customer experience was more person-dependent and very few firms employed professional practices in offering loans and managing account statements. During this time, multiple e-commerce businesses emerged and within no time, a large part of in-person pur-chasing shifted to online purchasing. Though online purchasing simplified the pur-chasing process, but the POS lending was still missing. Credit cards offered loans, but that was offered at a very high interest rate and the eligibility was dependent on credit scores. Additionally, this kind of loan would be treated more as a personal loan and would not have any relevance to the purchases made or the stores from which purchases were made.

Therefore, looking at potential opportunities, FinTechs started making POS lending a formal process. Initially it was PayPal and then a host of other companies like Affirm, Klarna and Zest started becoming popular in this space. The potential of this market is assumed to be half a trillion dollars.

While FinTechs were transforming POS lending, the technology disruption in POS systems was transforming the customer experience at checkout counters. The earlier-generation POS systems would typically be placed at the store exits, and there would be a large line of customers waiting to get their purchases billed. The attendant on the terminal would be struggling between cash, card, ­redemption coupons and loyalty cards. These systems were difficult to operate in some of the operations like deleting an already- scanned item or reversing any purchases. In recent years, the POS systems have changed radically. A substantial part of that has been made online as well, thus changing the experience for online customers as well. In some of the stores, a customer can select an item and then scan the same using his/her mobile phone and complete the billing and payment right on the spot. Therefore, he/she does not have to stand in checkout lines. Some of the e-commerce sites like Amazon now provide devices that monitor your washing powder level and reorders automatically after the stock levels have been depleted.

There has been a major shift in terms of POS technology as well. Now the POS systems are movable, as they operate on SIM cards as opposed to the wired connection they were earlier using. Some of the POS systems actually take in your mobile number and send bill and payment confirmation details directly to an individual’s mobile or email system. The software also is usually hosted on the cloud, thus simplifying loading upgrades and infrastructure requirements by a retail mart. The systems are also directly connected to an e-commerce solution, thus enabling an individual to order through a website. The customer can then collect the purchases in-person and then pay for it at the POS terminal in the stores.

Some of the large retailers and e-commerce giants are changing the experience by having no checkout lines. In this model, a customer logs into the physical store by tapping his phone at a terminal and then picks up groceries from shelves and walks out. The store software based on sensors and machine learning is able to identify the items that the customer has picked up and lists them in his/her mobile application. Once the same has been done, customers can check out and make payments from his/her mobile device without going through a physical checkout counter.

Retailers now have their own wallets and this makes the entire POS processing much simpler and straight forward. Now the customer does not have to take out a different card for making the payments as well. The best POSs sold in the market currently also have a 24/7 customer support system for their products. Most of the POS systems have virtual e-learning courses and trainings to train the users to manage their systems.

Another trend that is happening in POS systems is providing an in-store experi-ence. There are systems available that help you to screen products using a digital kiosk or a mobile device, thus facilitating the customer for a faster checkout. The sales per-son has been elevated to an advisory role, wherein he/she helps the customer in select-ing an item and at the same time enables them to do the checkout there and then itself. This type of selling has a personal connection and reduces the time a customer spends screening products and then stand in line to finish the billing for the same.

Social media itself has now become a great POS system in the new-age customer experience. Some of the applications are now using media platforms like Facebook and Twitter to do checkout and billing.

Most importantly, these platforms are also being used to provide customer service. Most of the POS systems are integrated/ integrating with social media to provide information on order processing and then being able to provide billing confirmations. The latest POS systems enable a cus-tomer to make a payment by just tapping his/her card or through a wallet that is integrated in the POS system. Some of the good POS systems also provide guid-ance in terms of overall store layouts, and provide offers and recommendations based on the customer purchasing patterns. All the above has made it possible for digital lenders to provide on-demand lending for most of the customers.

One of the biggest experience changes that is believed to be transforming the entire POS experience is eliminating the payment stage in the overall shopping experience. Since it has been observed that most customers doing purchases online drop out at the payment step owing to the complexity involved in the payment process. Therefore, eliminating the payment step increases the customer conversion for the online e-commerce websites. A similar service by Amazon 1- Click does the same thing but this works only for Amazon. There are FinTechs that are transforming the entire POS experience by merging the areas of payment and POS lending, thereby creating a completely new business process. Some of the key characteristics of POS lending platforms introduced by FinTechs are:

  • They are facilitating purchases and in some cases, actively involved in the purchasing decisions for the user, besides enabling the payments.
  • A large number of these POS lending platforms approve/disapprove funding instantly either by using the standard credit score or by using proprietary credit scoring mechanisms.
  • Despite a credit score check, most of the lending platforms do not impact credit scores at the point of a check, unlike established banks or card companies.
  • Most of the POS lending platforms usually charge a very nominal fee, but their main income source is the late fee received owing to defaults by the users and the commission from merchants and card companies.
  • All the POS lending platforms provide flexibility in the terms for repayment and charge interest rates and late fees for delayed payments.

Using these lending platforms, a user after ordering from an online website initiates a payment using the payment platforms provided by these FinTechs. These platforms, after doing an adequate credit check, pays the bill to the merchant and then sends a monthly or quarterly bill to the user. The user can decide to pay the bill using a credit card/debit card, bank checks, etc. If the user defaults on the payment, it will impact his/her credit score. Additionally, they charge interest to customers on delayed payments, and offer facilities to pay using a debit card. This mechanism to enable payments using debit card allows them to pay lower com-missions to the card company while they charge the same fees to the merchants. These FinTechs charge fees to the customers and merchants for the credit service it provides to the customers. Some of the platforms use government-issued IDs to carry out instant KYCs.

One of the interesting things that these FinTechs offer as part of POS lending is a facility whereby a customer can decide to pay back in installments. They, therefore, provide a complete end-to-end payment and lending experience transformation­. The consumer feels secure as he/she does not have to provide any credit/debit card information. Additionally, they would have to pay only if the goods are acceptable and they can consolidate all the purchases into a single monthly invoice. Though the customer pays monthly invoices, these FinTechs pay the merchant immediately after the customer has bought the item. Therefore, from a merchant’s perspective, this is a win-win as well, since immediate payouts to them helps keep cash flow running, especially in the case of small business owners.

In the United States, one in three purchases are made online, therefore lending at the checkout for online purchases becomes more of a necessity than an option. More often than not, most of the consumers, while making expensive purchases for a deal on an online website, may or may not have sufficient money on their debit/ credit cards. This is where POS lending becomes very important. There are FinTech credit platforms associated with wallets that facilitate payments during the check-out after completing the online purchase.

The customer is registered with the credit platforms after providing relevant information required for registration. Some of these platforms do a due diligence from a credit viability perspective after the registration application. These platforms may ask customers to provide their date of birth (DOB) and the last four digits of their social security number. If the same is authenticated, the customer walks away with the purchases and the approved customers can then pay the bill by mail (check), phone or online. These credit finetchs provide a certain amount of time to repay the amount in full for any purchases made through them. If the consumer does not pay within the stipulated time, then the customer is charged an interest rate from the date of purchase. This helps customers with a revolving line of credit and at the same time, stops them from using a specific credit/debit card, thus trans-forming the overall payment and lending experience in its entirety. This is also now being widely accepted by most the retailers.

FinTechs are not only transforming retail consumer lending, but they are also transforming the way purchases are being made for more-expensive items like airline tickets and healthcare. There are multiple loan options available for healthcare and vacation needs for an individual. FinTechs are creating a disruption to standard loan models by getting involved in the decision making of an individual for a dream vacation and then funding the entire trip. The consumer can then repay back the ticketing and lodging expenses through equal installments before the trip is actually made. Using the platforms provided by these FinTechs, an individual can identify his dream destinations and then search through travel sites to find the appropriate combination of bookings to be made for the vacation. He/she then sends his/her searched results to the FinTech platforms. The platforms then, based on certain criteria, determine the eligibility and creditworthiness of the individual. Accordingly, they sanction the funding for the vacations and issue payments to dif-ferent entities involved to complete the vacation. The user can decide and agree on payment terms with these platforms before the payment is actually done. Therefore, the user can define terms like the initial deposits to be made, the number of install-ments for repayments, etc. Some of these platforms do a credit score check, whereas others do not, before approving/sanctioning the funding for an individual user. These platforms usually charge the customers a fee and may have commission-based charges for tie-ups with airlines, hotels, etc.

Interestingly, in addition to being a consumer-lending firm, these platforms help individuals realize their dream vacations. If a person is aspiring for a trip to Paris, and because of multiple other priorities has never been able to save for it, then these platforms are the most appropriate option for him/her. With these platforms, they can ensure that all the amounts being accumulated is directed

toward fructifying­ this vacation. Therefore, it is not only transforming the way booking, payments and lending is done, but instead it is moving a step closer to realizing individual’s travel dreams which he/she might have considered too difficult to save for. In case the customer is not able to pay before the trip or trip

, they sanction the funding for the vacations and issue payments to dif-ferent entities involved to complete the vacation. The user can decide and agree on payment terms with these platforms before the payment is actually done. Therefore, the user can define terms like the initial deposits to be made, the number of install-ments for repayments, etc. Some of these platforms do a credit score check, whereas others do not, before approving/sanctioning the funding for an individual user. These platforms usually charge the customers a fee and may have commission-based charges for tie-ups with airlines, hotels, etc.

Interestingly, in addition to being a consumer-lending firm, these platforms help individuals realize their dream vacations. If a person is aspiring for a trip to Paris, and because of multiple other priorities has never been able to save for it, then these platforms are the most appropriate option for him/her. With these platforms, they can ensure that all the amounts being accumulated is directed

toward fructifying­ this vacation. Therefore, it is not only transforming the way booking, payments and lending is done, but instead it is moving a step closer to realizing individual’s travel dreams which he/she might have considered too dif-ficult to save for. In case the customer is not able to pay before the trip or trip gets cancelled, the payment he/she has made after the initial deposit gets credited for a future trip. Some of these platforms have been able to integrate themselves into robust travel search engine(s) and tie up with FIs so that they can help people design and pay in installments for their entire vacation. The good thing about these platforms in contrast to other travel loans is an individual would have surely repaid the entire debt before he/she goes on the vacation and therefore can travel with a peaceful mind.

Healthcare lending is another cost where FinTechs are transforming POS lending. Consumer lending in healthcare has been prevalent for a long time and specifically at the POS, in this case at the hospital. In the hospital, people have to make emergency decisions on high-cost medical operations to be performed on patients. In the current scenario, an individual has to go through a compli-cated loan application system to apply for any healthcare emergency loan. But with healthcare P2P lending FinTechs, the customer can apply on their platform online and get access to various lenders who are ready to lend to these individuals. The borrower can then decide to repay the amount in equal installments. These lending firms either charge interest rates or a one-time processing fee or both from the bor-rower and lenders alike.

In yet another interesting combination of payments and consumer lending, the consumer, after purchasing an item usually on an online e-commerce site, can opt for using one of the wallets as the payment method during checkout. The interesting part is that the customer does not get charged immediately, instead his credit/ debit card as set up in the account gets debited with the amount in multiple equal installments. Thus, the customer gets to keep more money that he/she would get as per his/her eligibility on the credit card. Moreover, the payment in installments ensures that the customer is not charged the penalty for the entire amount, but only for one installment and the merchants get paid immediately.

An example of such a FinTech would be Afterpay. Afterpay, a provider of installment services online and in-store, is a FinTech in Australia that is making news and is liked by consumers. It is evident from the 100K+ likes and 100K+ followers on their Facebook page. They are liked by most consumers because they have again merged payments and consumer lending and have come up with an entirely different, yet interesting concept. During the checkout process, the con-sumer can opt to use Afterpay as the payment method to confirm the purchase. The interesting part is that the consumer does not get charged the full amount immediately; instead their credit/debit card as set up in the Afterpay account gets debited with the amount in 4 equal installments every 2 weeks. Moreover, the payment in installments ensures that the customer is not charged for the entire amount upfront, but only for one installment. The merchants are paid upfront, rather than waiting for all the installments to be made by the consumer, and Afterpay assumes the risk of nonpayment by the consumer. An individual needs to be 18 years or older and have a credit/debit card to open an Afterpay account. Afterpay does not charge any fees to the consumer if payments are made on time and there is a transaction fee structure for merchants. Afterpay takes all the precautions to ensure the customer is not taken by surprise, including reminders by text messages and email. If payments are not paid before the due date or automatically processed on the due date, Afterpay charges a late fee and again gives 7 more days to pay back the outstanding amount before an additional late fee is incurred (source: www.afterpay.com). Therefore, FinTechs in POS lending are not only impacting how people interact with lenders, but they are changing the process entirely and venturing into the space where big banks (investment/savin ) did not even think to venture before.

Some of the FinTechs are getting merged and others are not able to become profit-able, but the ones with a robust business process and customer reach are definitely causing disruption.

Post Author: newfintech

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