How point-of-sale financing differs from credit cards



PoS (point of sale) financing or lending has been in use for more than a few years. As a rule, this happens when a customer buys expensive household appliances or a car. With the advent of e-commerce and rapid technological innovations over the past decade, these financing options have proliferated. This system benefits both businesses and buyers. The operation of the system is explained below.

Point of sale refers to a customer making payment for a product or service at a specific store. In such transactions, a merchant or merchant offers its customers a financing solution, usually through consumer credit. This is done by facilitating the buyer’s request for a line of credit to finance a specific purchase. Or PoS could allow customers to purchase certain goods up to a pre-determined credit limit from a specific retailer and then make the repayment over a specified period.

How PoS Differs from Credit Cards

Traditional credit cards are a type of open-ended credit. In PoS financing, popular open forms of credit are store brand and private label credit cards. Unlike conventional credit cards, these can only be used at certain points of sale. Since the term of the loan is indefinite with private label credit cards, the scope and amount of payment becomes difficult for consumers to understand.

Typically, closed credit is used to finance the purchase of certain products or services, with payments being split into a limited number of equal installments. Here, the payment obligation is more transparent and user-friendly, unlike open-ended credit. As e-commerce grows, closed credit is gaining popularity as more retailers offer various payment alternatives to online customers.

During a consumer’s checkout process, PoS financing can be conveniently integrated, especially for online purchases. The retailer can partner with lending entities such as banks, NBFCs, or fintech companies to provide PoS financing to customers throughout the purchase cycle. In such cases, the terms of payment and the duration are explicitly stated.

If a client accepts the terms and conditions, the lending institution approves the loan. Thereafter, the buyer interacts directly with the lender regarding the repayment. During this time, the lender pays the retail outlet or business for the purchase.

Benefits, challenges and opportunities

Retailers can help customers opt for PoS loans in-store or through mobile phones. A closed product online is more beneficial to consumers than a private label or an open brand card because it is transparent, simple, fast and convenient. Thus, it promotes greater customer loyalty and retention. It’s also good for buying high-value products or services.

Additionally, retailers benefit as cart abandonment rates are reduced while increasing conversion levels and increasing retail sales. According to a study by Forrester Research, the implementation of online PoS financing by companies led to a 32% growth in sales. Apart from increasing retailers’ customer base, it improves their image among consumers.

Nevertheless, PoS lenders are facing some challenges in the country. As many retailers are not yet internet or tech savvy, technical and financial awareness should be expanded to improve the adoption rate of PoS financing. Additionally, if lenders remain too dependent on customers’ card readings to make repayments, there is a risk that customers will switch to another service provider.

Additionally, not all POS vendors adhere to strict KYC standards or onboarding protocols when deploying the machine. Also, without the consumer’s consent, they may not be able to disclose personal data to third parties. Therefore, there could be duplication of KYC processes when sanctioning loans. However, these problems can be solved.

As a noticeable gap exists between registered retailers and PoS devices in India, there is a huge opportunity to expand PoS financing in the country.

By Nitya Sharma, CEO and Co-Founder, Simpl

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