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What is point-of-sale financing?

Point-of-sale (POS) financing is a way to offer credit to shoppers when they’re ready to check out. This type of financing can include credit cards, lines of credit, or unsecured loans—also known as point-of-sale loans. The POS loan option, in particular, allows customers to make incremental payments over time, and it can be a powerful sales driver for your business.

POS loans have been used for years by auto dealers, orthodontists, and other businesses that sell big-ticket products and services. The loans often come with flexible payment plans that can help consumers manage their personal cash flow. And this type of lending is at the heart of the buy now, pay later (BNPL) activity that’s become a very popular POS financing option today.

“When done correctly, POS financing is a win-win for both businesses and customers,” said Miron Lulic, founder and CEO of SuperMoney, a financial services firm offering real-time financial tools for business owners. 

How point-of-sale financing works

Not many businesses have the capital to fund a financing program in-house. Your business can partner with a wide array of lenders to offer POS financing, from large banks to credit card companies that can create a card that’s tied to your brand. Or you can partner with a third-party BNPL provider, like Affirm, to offer POS loans.

One great thing about most POS financing is the convenience: Shoppers don’t have to leave your site in order to qualify for financing. Here are some more details on how the process works with a BNPL provider:

  • At checkout, shoppers will notice that requirements for eligibility involve sharing a few quick pieces of personal information. (In some cases, shoppers may need to supply SSN details and undergo a soft credit check that won’t impact their credit score.)

  • The advanced underwriting process is done in seconds, and eligible customers learn how much they can spend.

  • In many cases, the loans are interest-free, and payments are made in 4 biweekly installments. Some loans may carry interest or a down payment, depending on the buyer’s credit eligibility, your agreement with the BNPL provider, or the total cost of the purchase. 

  • The buyer sees the payment terms up front and agrees to them before completing the purchase. In some cases for high-cost items, the payment schedule may be monthly, extended over a year or more.

  • The BNPL provider processes the loan and collects the payments. You receive full payment within hours, minus the agreed-upon transaction fees.

The seller of Ikon Pass, the popular winter adventure access pass, recently switched from an in-house POS financing program to offering Affirm instead. The process of implementing Affirm was “smooth and efficient,” and the business saw robust sales from customers choosing the pay-over-time option.

How point-of-sale financing can benefit your business

In recent years, consumer preferences have shifted and made POS loans more common for purchases that aren’t necessarily big-ticket items. A McKinsey report noted that POS loans of less than $500 are growing 40-50%. Much of this activity comes through BNPL and represents a huge opportunity for your business.

  • Increase average order value (AOV). Giving your customers more time to pay can allow them to upgrade their purchase or put more items in their cart. This can lead to an increase in overall sales without damaging your margins. And the result could be up to 50% lift in AOV, according to an RBC Capital Markets analysis of the BNPL industry.

  • Increase conversion. Offering a BNPL option to customers can increase retail conversion rates by 20% to 30%. You can magnify this increase by marketing BNPL options up-funnel. Nearly 75% of consumers who finance large-ticket purchases decide to do so early in the purchase journey, according to the McKinsey study.

Your choice of BNPL provider can also make a significant impact on your business, as we’ve seen with many businesses that partner with Affirm. The advantages can include up to 85% increase in AOV and up to 20% repeat purchase rate. And Affirm has never charged late or hidden fees, which has helped us win over 12.7M+ active users in our network.

For another example of how POS financing can be a win-win for your business and customers, see the impact of Affirm’s partnership with Mitchell Gold + Bob Williams Home Furnishings (MG+BW). 

“The ease of use that comes with Affirm is really fantastic,” said Emily Xu, CMO at MG+BW. “Having this payment option with Affirm removes some friction in our customer journey, and that’s an important pillar for our growth.”

Learn why the future of buy now, pay later holds even more upsides for conversion and sales revenue.

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