PoS (point of sale) financing or lending has been in use for more than a few years. Typically, it happens when a customer purchases big-ticket home appliances or a car. Given the advent of e-commerce and speedy tech innovations over the past decade, such financing options have increased. This system benefits both businesses and buyers. How the system operates is elaborated below.
Point of sale denotes a customer making payment for a product or service at a specific store. During such transactions, a retailer or shopkeeper offers customers a financing solution, usually through consumer credit. This is done by facilitating the buyer’s application for a line of credit to finance a specific purchase. Or PoS could permit customers to buy certain goods up to a predetermined credit limit from a specific retailer and then make the repayment over a particular period.
How PoS differs from Credit Cards
Traditional credit cards are a type of open-end credit. In PoS financing, popular open-end credit forms are store-branded and private label credit cards. Unlike conventional credit cards, these can only be used at certain outlets. Since the loan tenure is undetermined with private label credit cards, the scope and amount of payment become difficult for consumers to understand.
Generally, closed-end credit is used for financing the purchase of certain products or services, with the payments divided into a limited number of equal instalments. Here, the payment obligation is more transparent and consumer-friendly, unlike open-end credit. As e-commerce grows, closed-end credit is gaining greater traction because more retailers are offering diverse payment alternatives to online customers.
During a consumer’s checkout process, PoS financing can be integrated conveniently, especially for online purchases. The retailer can collaborate with lending entities such as banks, NBFCs or fintech firms to provide PoS finance to customers throughout the shopping cycle. In such cases, the payment terms and tenure are stated explicitly.
If a customer accepts the terms and conditions, the lending institution approves the loan. Thereafter, the buyer interacts directly with the lender regarding the repayment. Meanwhile, the lender pays the retail outlet or business for the purchase.
Benefits, Challenges and Opportunities
Retailers can facilitate customers opting for PoS loans in-store or via mobile phones. An online closed-end product is more beneficial for consumers than an open-ended private label or store-branded card as it is transparent, simple, quick and convenient. Thereby, it promotes greater customer retention and loyalty. It is also good for buying high-value products or services.
Besides, retailers benefit since cart abandonment rates are reduced while boosting conversion levels and increasing retail sales. As per a Forrester Research study, the implementation of online PoS financing by companies led to a 32 per cent growth in sales. Apart from augmenting retailers’ customer base, it improves their image among consumers.
Nevertheless, PoS lenders face some challenges in the country. As many retailers are still not Internet or tech-savvy, technical and financial awareness should be spread to enhance the adoption rate of PoS financing. Moreover, if lenders remain overly dependent on card swipes by customers to make repayments, there is a risk of customers shifting to a different service provider.
Furthermore, all PoS providers don’t adhere to stringent KYC norms or onboarding protocols during machine deployment. Also, without consumer consent, they may be unable to divulge personal data to third parties. Consequently, there could be a duplication of KYC processes while sanctioning loans. These issues can, however, be addressed.
As a discernible gap exists between registered retailers and PoS devices in India, there is an immense opportunity to grow PoS financing in the country.
By Nitya Sharma, CEO and Co-Founder, Simpl