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illustration of point of sale financing

 

 

As online shopping continues to thrive, point-of-sale financing choices like buy now, pay later (BNPL) plans are becoming increasingly popular. These options offer consumers the convenience they need while also providing them with flexible payment solutions. 

 

The most widely recognized form of point-of-sale financing is known as Buy Now, Pay Later (BNPL). BNPL offers interest-free credit to consumers, enabling them to divide the cost of a product over a short period. It's important to note that while BNPL falls under the category of point-of-sale financing, not all point-of-sale financing falls under BNPL. Other variations of POS financing include Short-term Interest-free Credit, Interest-bearing options, or Pay in 6, 12, and 24 installments.


What is Point-of-Sale financing (POS) and how does It work for businesses?


 

So, what exactly is POS? It's a way for you to make smaller payments over time instead of paying the full amount upfront. POS is often offered by third-party lenders who partner with merchants to offer financing options to their customers. When your customer decides to use a POS system, they'll be presented with a range of financing options, including the total cost of the purchase, interest rates, and any fees associated with the financing. Once they've chosen their financing option, the lender will pay the merchant in full, and they'll make payments to the lender over time.


Why do merchants and consumers opt for POS lending?

 

Understanding why some merchants choose to partner with POS lenders is crucial. Before that, let's briefly consider why consumers sometimes opt for POS when purchasing expensive items like furniture, vehicles, home renovation projects, or travel expenses.


 

  • Flexibility: offers various repayment options based on the financial situation.
  • Access to high-ticket items: makes expensive products more accessible.
  • Convenience: quick and straightforward application process.
  • Credit score considerations: more lenient credit score requirements than traditional loans.
  • Avoid high-interest credit cards: lower or zero-interest rates.
  • Spreading out payments: manage cash flow and avoid financial strain.
  • Protection of savings: retain savings for emergencies or other expenses.


Now, let's explore why merchants would choose POS financing options:

Increase Sales

 

One of the key reasons merchants opt for POS financing is that it makes high-ticket items more accessible to a wider range of consumers. This benefit is especially significant for merchants who sell expensive products, such as furniture, appliances, or electronics.


Improve customer loyalty

 

Another advantage of point-of-sale lending is its potential to improve customer loyalty. By offering financing options, merchants make it easier for their customers to make purchases, which can result in repeat business. Additionally, customers who use point-of-sale financing may be more likely to recommend the merchant to friends and family, which can help increase the merchant's customer base.


Reduce the risk of unpaid invoices

 

When customers use point-of-sale financing, the lender assumes the risk of non-payment, guaranteeing that the merchant receives payment in full at the time of sale. This can be especially beneficial for small businesses, protecting them from the financial impact of unpaid invoices.


POS financing vs. BNPL: a comparison


 

When comparing POS lending to BNPL, both financing options allow consumers to increase their purchasing power and acquire needed products. However, there are some important differences to consider:

 

  • Interest rates and fees: both POS and BNPL may include interest and fees, however, BNPL lenders typically offer 0% interest during the qualifying payment period while POS lenders may offer fixed interest rates. 

 

  • Target consumers: BNPL has gained popularity among millennials, while POS lending balances have reduced significantly despite the financial challenges caused by the COVID-19 pandemic. According to a recent survey conducted by Consumer Financial Protection Bureau (CFPB) in 2022, BNPL usage among millennials increased by 72% over the previous year, while POS usage saw a decline of 18% during the same period.

 

  • Flexibility: POS customers typically have a set repayment schedule and must make payments regularly. In contrast, BNPL customers may have more flexibility in terms of when and how they make payments, which can be beneficial for those experiencing unexpected financial difficulties.


In conclusion, both BNPL and point-of-sale systems aim to provide consumers with flexibility and convenience while offering solutions for businesses, whether big or small. However, it's essential for consumers and merchants to weigh the pros and cons of each financing option based on their specific needs and financial situations.


If you’re on the hunt for a Financing partner with all the previous benefits and more for your consumers, cashew would be your best option. Cashew provides your customers with diverse flexible payment options and installment plans that will ease their shopping experience and the payment process! Download the cashew app now for Android and IOS to keep up with the new payment and financing solutions!