Banks lag in the POS credit race, but there's hope
The evolution of payment technology has diversified into frictionless credit provision at the point of sale — retailers that realized this early on and entered into technology partnerships are already reaping the rewards.
Now, with card issuers able to offer more attractive payment installment plans for customers to use at checkout, they have a golden opportunity to appeal to new prospects, regain lost customer relationships and benefit from increased loyalty.
Imagine one of your card holders wants to buy a large TV ahead of the Super Bowl but can’t make a full payment straight away. They want to make the best financial decision, quick and easy. What can they do?
One option is a store-brand credit card. Store-brand credit cards are a convenient option and usually have better approval rates than general-purpose credit cards — despite the fact that these cards can come with a high APR, less enticing rewards and more complex terms and conditions than bank-issued credit cards.
Alternatively, the consumer can use short-term credit financing at the point of sale. These plans are quick to apply for, mostly frictionless and offer a wide range of immediate solutions — one-off finance programs, delayed payments or installments. Outside the U.S., third-party technology providers are rapidly taking off to help retailers offer payment plans — Klarna is one of the most well known, serving some 60 million customers. Globally, PayPal Credit is building its fan base.
Two things are common in both of these scenarios — the customer gets a fast, convenient experience that will make them return and use the service again, maybe for an unexpected vet’s bill, maybe just for a big grocery bill. Customer loyalty grows.
But at the same time, the issuing bank loses out on customer relationships and, in the long term, on transactions, too. Here is an ideal opportunity for card issuing banks and credit unions to muscle in on the act.
When consumers choose a finance option, they want to know how much money and when they will be paying toward the purchase as well as gain a clear timeline of when the plan finishes — without worrying about their monthly cash flow.
Bank-driven payment installment plans can give them this and some issuing banks are now coming around to offering these. In fact, some have started to realize that the way to compete with retailers and digital banking challengers is to offer installments on specific purchases as part of their mobile services.
When financial institutions offer payment installment plans through their mobile banking app, they give customers a more complete view of their finances as well as a more interactive experience — for example, by receiving a push notification when the scheduled payment has been successful or when their purchase is eligible for installments. These in-app installment notifications are the issuing bank’s way of thanking the customer for using their credit card instead of a store-brand one, saying they understand making a purchase decision is not always easy and offering a simple and stress-free solution right away.
With mobile-based installment features, customers can decide more than just whether they want to finance a purchase — they can opt for different time and installment specifications. That said, it’s not just the customers who get to pick between options.
For banks to offer a sophisticated and personalized service, they themselves must be able to set the parameters of their installment programs with a large degree of freedom. Most banks don’t have large IT departments that can design these services around the customer experience — but some third-party technology providers specialize in this.
These integrators can configure installment plans so that they can be offered at specific retailers or retailer types — both physical and online — over any spending amount or time period, specifying eligible customer types, card types and even interest rates. Outsourcing to fintechs is a viable option to gain a fresh perspective into customer needs in the form of app user reports and more targeted customer insight, without the IT burden.
Customers are looking for convenient and frictionless payment experiences and will increasingly choose to spend their money where the option to spread the cost of a purchase is available. For issuing banks, this means offering payment installment plans can be the differentiator between gaining a customer and losing one.
Being idle in the digital age of banking is costing them revenue and customer relationships, but as more fintech providers step up to help, mobile-based payment solutions are starting to fill the gap. Although slow to catch up, issuing banks are well placed within the payments ecosystem to capitalize on short-term credit provision — in fact, they can be the biggest winners.