Point of sale financing (POS financing) is a financial service that allows customers to purchase goods and services. It spreads the payment over time via monthly instalments. They are usually offered directly at the point of sale.
This financing option has become increasingly popular on both physical and online store platforms. It allows consumers to access items they might not be able to afford immediately. The process has become a crucial component of the customer experience (CX). It helps provide them flexible payment terms for a variety of items, whether they are:
- Consumer items.
- Essentials.
- Household items.
- Travel services.
POS financing has become a robust tool for businesses offering flexible payment options to their customers. This is thankfully due to the rise of digital payment platforms. A POS integrates seamlessly into the customer checkout process, making it a competitive alternative to traditional debit/credit card purchases.
Understanding POS Financing
POS financing, including buy now, pay later (BNPL) and other flexible instalment loans, can help empower consumers to make purchases easily and spread out payments flexibly over time. It takes place at the point of sale. It is usually in the following forms:
- In-person at a checkout counter.
- Checkout pages in online stores.
POS Financing enables customers to complete transactions without relying on traditional payment methods (cash, debit/credit cards). This caters to both the rising demand for flexible payment choices and facilitates quick access to high-value items that were once out of reach. This is why a point of sale financing platform works wonders.
How does POS Financing differ from traditional financing?
Traditional financing involves obtaining credit/loan before a purchase is made. POS financing is different. It allows consumers to complete transactions in real-time. Shoppers can usually apply and get it approved without the following:
- Any prior credit approval.
- An established line of credit.
POS Financing can help with the following from the retailer’s perspective:
- Drive sales upwards.
- Attracting a broader customer base.
- Making a seamless and hassle-free shopping journey.
Understanding the modus operandi of POS financing
How point-of-sale financing works? Here is a breakdown of the operating mechanism of POS financing:
- The Checkout: At checkout (in-person or online), a customer can select POS financing as a payment option. This can be presented alongside other payment methods, such as debit/credit cards, cash, digital wallets, and the like.
- Applications: Customers complete a brief application form, providing their basic personal details (name, contact information). Some systems may need more comprehensive details.
- Approval: The system typically processes applications in real-time during the checkout process. If approved, customers are presented with the monthly instalment amount, the duration of the payment plan, applicable interest rates, and other relevant terms and conditions.
- Completion: Once customers accept the terms, they can complete the transaction using POS financing as their payment option. The purchase amount is divided into multiple instalments. Customers are billed accordingly until they have paid off the total amount over the agreed-upon period.
Different kinds of POS Financing available
There are various types of point-of-sale loans and financing solutions available. Each solution caters to different customer needs and business models. Here are the ones in everyday use:
- Typical Instalments and Loans: They are the most basic forms of POS financing. Customers agree to repay the purchase amount via equivalent instalments. A specific payment period is established. Interest rates depend on the loan terms and the customer’s credit profile.
- Buy Now, Pay Later (BNPL): This type of financing enables customers to make purchases without requiring any upfront payment. Instead, the total amount is divided into smaller payments made over a few weeks/months. BNPL has often been confused with POS financing. They both are different terms. BNPL usually involves short-term and interest-free repayment terms. POS financing solutions offer extended payment periods with competitive interest rates.
- Interest-Free Financing: Some businesses offer interest-free financing for a limited period. They allow customers to make purchases without incurring any additional charges as long as they can repay the outstanding amount within the stipulated time.
- Merchant-Branded Financing: Some retailers provide their own branded financing programs in partnership with lenders. Customers receive exclusive financing offers. The programs are customized as per the industry or products a business offers.
How good is POS Financing?
Point-of-sale lending and financing have many advantages for both businesses and customers alike. It is a robust tool in the e-commerce and retail landscape.
| For Businesses | For Consumers |
|---|---|
| Flexible payment options raise sales. Businesses can make high-value purchases more accessible to customers. This leads to more sales and average transaction values. POS financing can change the game for businesses. It attracts budget-conscious customers who would otherwise be unable to afford a large upfront payment. |
POS Financing helps break down larger purchases into affordable monthly payments. High-priced items are more accessible to a broader range of customers. |
| Providing customers with flexible payment solutions amplifies the shopping experience. Customers are hence more likely to return to the business shortly. | Customers can apply for financing in minutes. They can do it at the POS, whether online or in a physical store. They also receive approvals instantly. |
| POS financing platforms are designed to integrate seamlessly with existing payment systems. They require minimal changes to the checkout process. It reduces friction for both customers and merchants, resulting in a seamless checkout experience. | Many kinds of POS financing are available. Customers can choose the most flexible option fitting their financial situation. Both short-term BNPL and long-term instalments are available. |
Conclusion
POS financing has evolved into a key component of modern-day retail. Businesses now have the tools to provide flexible payment options that fulfil customer requirements. From traditional instalments and loans to BNPL models, businesses using POS financing solutions achieve more sales, increased customer satisfaction, and greater loyalty.
As technology evolves, POS financing will integrate seamlessly in checkouts. Yet the process is subject to regulations and laws.
