For a long time, the market for financing private consumption has been the domain of retail banks. Whilst the offers were previously purely “bank centric” (the customer using his overdraft options or an instalment credit of his local bank), nowadays the consumer more and more uses “merchant centric” offers (the merchant cooperates with a specialised bank and offers an instalment loan or deferred payment).
Originally, these were only offers at stationary POS with very attractive conditions (traditionally financing in furniture or electronics markets), but in the meantime the financial solutions have become complementary offers in the shopping process (pre-sales, sales and after-sales). Especially in e-commerce, new market players (e.g. Klarna or RatePay) have gained considerable market share due to the very successful use of financing solutions which are incorporated into a very simple process design.
From the customer’s perspective it is obvious that the frequently quoted aversion of Germans against credit cards clearly dwindles as soon as they are provided with a sleek and convenient process. At the same time, transparency is crucial for the customer. He finances THE washing machine over time (“pay per use customer”) or facilitates the spontaneous purchase of THE tv until his liquidity is at his disposition again (“money have customer”).
In e-commerce, even the possibility to finance the purchase is a crucial factor for the customer, even if it is not used for this particular purchase. All this leads to the following success formula:
(transaction + financing) * convenience
= relevance of a consumer financing offer for the customer
For retail banks, this relevance is – especially when financing amounts less than 3.000 € – merely minimal. At the same time, they still hold the reigns of the “transaction”, e.g. via the credit card issued by them. The prospect for the consumer to finance his purchase, even if provided AFTER the purchase, could be an attractive offer as even nowadays a large proportion of the purchases on account are later being converted into payment by instalment. Another possibility for banks to integrate their products directly into the online shopping process is the integration of the credit card and the transaction-based financing solution into a wallet (“convenience”).
Is the market retrograding to “bank-centric offers“?
Banks still savour from the highest trust levels. Moreover, the customer likes to keep an eye on his financial status – preferably all at one institute. New technological possibilities allow for convenient and cost-effective processes. Retail-banks can – with a smart connection of (new) payment transaction products and their known competence in the credit business – create innovative solutions with relevance for the consumer and thereby also for the individual merchant. There is even more revenue potential if these solutions are being supplemented by further pre-sales and after-sales services for the bank customer and the merchant.
No matter if you are a retail bank, a payment transaction service provider or a merchant: contact us to discuss suitable consumer financing solutions of the future!