Spreading the joy (and payments):
How POS lending is heating up this winter
The seasonal TV adverts have been launched, the countdown to Christmas has begun and many consumers are kicking into high-gear shopping mode! With Black Friday and Cyber Monday complete and the festive season almost upon us, online shopping volumes are set to continue to rocket. Initial figures show that spending in the UK hit over £4bn during the discount week; sales volumes are up 7% compared with last year, while sales value rose 16%.
It’s a time for tradition and gift-giving, yet there’s nothing traditional about how many consumers are choosing to pay.
The end of cash?
In the UK, the volume of debit card transactions overtook cash for the first time in 2017. The gap is set to widen, and it’s predicted that cash will be overtaken by credit cards by 2026 and only makeup 9% of all payments. But it’s the rise in popularity of installment payment methods that are creating waves, with customers looking for a way to spread out online purchase payments without using a credit card.
Younger consumers, wary of credit cards and seeking a more convenient, one-click checkout experience with less friction, are fuelling an increase in installment transactions, preferring to ‘Klarna’ it, over other traditional methods. In fact, Klarna has been so successful in its expansion across Europe that it now holds a 10% e-commerce market share in the region, and processes over 1 million transactions a day globally via 190,000 merchants and 60 million end-users.
Growing e-commerce market attracting new players to the payments industry
It’s not just the opportunity to jump on the growing demand for alternative financing options that’s attracting new firms to the payments industry, it’s also the potential offered by the rapidly growing e-commerce market. Online shopping spending across Europe is forecast to hit 621 billion euros by the end of this year; that’s a 13% uplift from 2018.
As a result, there’s an increasing list of ‘buy now pay later’ firms expanding their coverage of the market. Alongside Klarna, this now includes Afterpay, Laybuy, Laterpay, as well as Clearpay who already have 200,000 UK customers following their launch in June.
The concept is also gaining popularity across Asia Pacific, with Australia, Singapore, and China being the early adopters. Afterpay and Laybuy in Australia are offering convenient credit financing options for a large proportion of online shoppers. Hoolah from Singapore is offering such services by partnering with more than 50 merchants across furniture stores and high-end electronics, whilst Ant Financial offers a similar service on online purchases made via its Alibaba website.
A growing middle-class population, widespread smartphone adoption, and rising internet penetration are all set to drive the Asia Pacific e-commerce market to over USD 2tn by 2020. However, ASEAN with over 630 million inhabitants, more than 50% of the population remains unbanked, with no access to credit cards. Up to 70% of e-commerce consumers would abandon their carts after adding items to it, this poses a massive missed opportunity for retailers.
Credit cards still holding their own
But, don’t expect credit cards to disappear any time soon, in the UK alone, there were 3.2 billion payments made using credit cards in 2018, an increase of 4% over the previous year that reflects a more general growth in unsecured lending. Some of this growth can be attributed to the bounty of rewards available to card users that typically use their cards and pay off in full each month. But with more retailers adopting the buy now pay later and installment model, credit card issuers may need to get more creative and offer more than rate reductions, rewards or purchasing promotional periods to stay relevant in a world where consumers have more choice than ever before.
Taking the risk out of payments for merchants
One of the major benefits POS firms like Klarna offer to merchants is a simple payment option with zero risks. Platforms like Klarna and Clearpay assume all financial risk when lending to a customer, making them even more attractive to retailers. With the volume of applications and transactions set to increase across POS credit and card products, accurate, robust and fast risk decisioning remains crucial. So, what technology do POS lenders looking to grow in an increasingly competitive market need to have in place?
The technology to power instant decisions
To facilitate an exponential increase in e-commerce transactions, new entrants and existing players looking to expand their global reach need to deploy country-specific processes that deliver speed, credit risk accuracy, and a frictionless mobile-first customer-experience.
As POS firms grow, their risk technology and modeling rules need to be future-proofed and configurable to allow for fast customer and merchant onboarding and instant credit decisioning, allowing wide data access and integration to internal systems. Having the technology in place that delivers on functionality, flexibility and agility are paramount to enable the processing of hundreds of transactions per second, coping with periods of spiked activity such as Black Friday and converting previously abandoned cart purchases.
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