What is point of sale financing?
To put the definition in a bracket, point of sale (POS) financing is a type of personal loan. The name can be a little ambiguous, but it really means what it says; a point-of-sale finance is a when a retailer offers a credit to their customers exactly at the point of “purchase”. Since, it is a form of credit, it is also sometimes known as POS lending. It is usually used for purchasing items such as electronics, automobiles, furniture, high-end gadgets etc.
The question is, what is so new about POS financing?
POS financing has been present in the finance market for a long time now, but was limited. With the advancement of technology, it has developed exponentially and has become easier to access. What makes it unique are the relaxed eligibility requirements, compared to other commonly-used financing.
But how is it different from other financing options?
Under this arrangement, the lender provides finance only to consumers when they buy from a network merchant partner and in certain cases only approved products of the merchant. This is different from having a credit card, which can be used to obtain finance irrespective of the merchant and the product which is being purchased. POS financing is also different from raising a personal loan. There are two reasons: (1) POS is supported by Merchant input unlike personal loans, where an application has to be processed without any other inputs apart from borrower KYC and financial statements (2) POS financer knows what the finance is being raised for, unlike a personal loan where the purpose could be any.
How does it work?
Retailers partner with third-party lenders who are usually financial technology companies, and then integrate those lending services into the checkout process.
Point-of-sale financing is available at the retailer’s website/store, thus making it so convenient to receive financing for one-time big purchases (which POS is usually used for). Perhaps, the biggest benefit of POS is the relaxed qualifications to be eligible for one. However, lenders may still require unique identifier e.g., Social Security Number to assess creditworthiness.
Thereafter, the approved customers can choose from the available repayment terms (schedule) to reach a monthly payment (installment) that suits their budget. The repayment terms may vary lender-to-lender and also the value of purchases, ranging from weeks to months, and occasionally years.
Some financing companies divide the purchase amount into a number of payments with the first collected at checkout and subsequent installments charged thereafter, whatever the duration that may be set. It works somewhat on the “down payment” model where the customer pays one installment at the time of purchase and later on pays remaining installments over time. All the payments here are equally distributed, interests charged on the loan amount. There are fees charged for late payments and in some cases, there may be some origination fees too which the customer has to pay.
Due to the fact that all of this process is digitized, it is easier to keep a track of payments, due dates, and any other additional information related to the POS. All of these can be accessed through the lender’s website or mobile application, as the case may be.
In most cases the lenders maintain a price list with the retailer at which they are allowed to sell the product. Such control allows the lenders to encourage customers to opt for POS by attracting them through their promotions, offers and lower rates of interest etc.
Digital Lending and POS Lending
POS Loan Origination System on digital platforms are API friendly that allow lenders to seamlessly integrate with partner merchant systems to provide customers a seamless application experience. This helps financing become a part of the purchase process itself.
Other POS financers can have standalone apps or web interfaces with connectors in their digital lending solution for borrower data enrichment and historical credit behavior to be made a part of the decision making.
Point of sale financing is undoubtedly a growing market. For that reason, it is a good time for a consumer with a good creditworthiness to seize the opportunity of finance, because of all the major platforms present in the market, a plethora of options to choose from are afloat. There are a variety of attractive offers that are difficult to ignore. From the standpoint of a merchant, this is the right time for you to integrate your business with POS, as this finance system is regularly expanding its horizon and becoming suitable to a wider range of businesses. It has a lot to offer for both, the merchants and their customers. There are no hassles of credit limit, flamboyant eligibility criteria, excessive rates of interest etc.