A common challenge merchants face is offering bank loans to their customers at the place of purchase. Integrating with bank systems is no easy feat; hence, merchants initially turned to fintechs for Buy Now, Pay Later (BNPL) solutions.
However, they have come to realize that they need to take a long-term strategic view to point-of-sale (POS) financing instead of a short-term, ‘quick sale’ approach. In today’s high-interest environment, consumers should also be more educated about which type of credit they need and who they are taking credit from. If they want competitive loans that promote consumer protection and responsible lending, they need access to bank loans and traditional lenders. Plus, the split pay options just don’t make sense for larger ticket purchases.
This is why embedded lending options from banks will be key in 2024, empowering consumers to achieve life milestones and overcome financial barriers in their personal lives and businesses.
BNPL services integrated into e-commerce stores have made it easier for consumers to access credit, especially as the providers often use data beyond traditional credit scores in their decisioning models. But this has also led to more debt: Many users have had to borrow money to repay their installments.
Like BNPL, embedded lending solutions also involve convenient and real-time customer financing options, again integrated into merchants’ native buyer journeys. But the main difference lies in the financing itself — embedded lending solutions insert a variety of responsible financial products (for varying customer credit profiles, ticket sizes, and use cases) from regulated banks and lenders within the purchase journey.
Take out-of-pocket medical treatments and procedures in the US, for example. Patients often struggle to afford them as it’s usually an unexpected expense they haven’t budgeted for.
However, healthcare providers can give patients access to a more cost-effective alternative to credit cards and third-party healthcare financing solutions. They can consider adopting fair payment plans from top banks and regulated lenders that are embedded in patients’ existing payment processes, whether in the clinic, on the phone, or online. If providers adopt a white-labeled embedded lending solution, patients don’t need to be redirected to a lender, smoothing the path to treatment and building customer loyalty.
As embedded lending offerings from banks and responsible lenders also include installment loans over a longer term for larger amounts, service providers and retailers can cater to large-ticket purchases. For example, holiday booking sites can offer responsible lending or installment options at the POS, making memorable family trips affordable and hassle-free. Customers can also benefit from this type of financing for even bigger, more costly milestones, like a wedding, building a business or renovating a house.
It’s not news that BNPL is accessible to consumers with lower credit scores and brings flexible financial products directly to consumers at the place of purchase.
But what about those customers with excellent credit scores? Do they really need embedded lending options as their financial barriers are lower? Flexible financing options do help high net-worth individuals by freeing up their cash for other landmark moments and opportunities.
Opportunity cost is their real financial barrier. For example, if they use their money on hand to pay for a home renovation, they could be sacrificing an investment opportunity. Rather, they could leverage a POS financing option for a large-ticket purchase and put their money to work in more profitable ways.
Due to the blending of financial services into non-financial platforms, it can be hard for consumers to tell reputable financial services from potentially harmful lending offerings. So, with data privacy also being a significant worry, merchants would do well to work with compliant service providers and fintechs, for example, those that are SOC-2 compliant and that utilize secure APIs.
Also, by choosing white-labeled financial solutions from reputable banks that are already regulated, merchants can give their customers financial peace of mind and, in doing so, build their brand loyalty.