Finance Matcher: How a consumer focus improves merchant outcomes

Fintech is changing. Today’s consumers look for the best experiences; they’re more open to trying new things and are less likely to accept that the way things are done is the way they should be done. 

According to PWC, 73% of customers now say customer experience (CX) is the number one thing they consider when deciding to purchase from a company. 80% of organisations now expect to compete primarily based on CX. In other words, companies need to focus on the customer if they are to keep up, let alone succeed.

For a tech platform like ours, one who works with banks, lenders and merchants, that means building tools for the end-consumer. It means focussing on creating the best shopping experience for the customers of our customers, whether that’s in-store, online or over the phone. Consumers are the end game. If we can add value to them, we add value to the other parts of the ecosystem as well.

That was the thinking behind our latest product update, Finance Matcher, a new tool for Divido merchants that puts customer affordability first. Finance Matcher aims to deliver better outcomes for consumers, but in doing so, delivers better commercial outcomes for our merchants and lenders.

The old way: accept or reject

In a traditional retail finance transaction, a you go to a merchant’s checkout, select finance as a payment option and complete a form. The lender will make a decision based on the parameters they’ve set to determine a person’s creditworthiness. That includes your repayment history and credit score, but also affordability.

You’ll be declined if you set your monthly repayments too high. But it’s rare that you’re ever told by how much. A £20 reduction per month could be the difference between being accepted or rejected.

So it’s common for customers to apply for credit they think they can afford only to be declined. They’re left frustrated and often angry with the companies they’ve interacted with.

It’s a poor experience for the consumer, it impacts the conversion rates and reputation of the merchant, and it’s bad for the lender because they don’t get the loan.

The new way: match your customers to affordable finance

What Finance Matcher does is provide guidance – or let’s say, education – to the consumer to say ‘you may qualify for finance if you structure your plan differently’.  That could be a higher deposit today or a longer repayment term, to reduce monthly repayments and make the finance plan more affordable. It’s like giving them a second chance.

It puts the control back in the hands of the consumer, so they can say ‘oh actually, I never realised I could stretch the payments over a longer period. Maybe I have to pay more interest, but that makes the monthly payment a lot lower for me which means I can afford it.’

That’s really powerful. With the consumer more informed about the options available, they have more of an idea about what the lender is looking for. A small adjustment means the consumer can get the thing that they want to buy. So it isn’t just about the user experience – how pretty or easy it is to use. Focusing on customer outcomes means a higher conversion rate for the merchant, and more loan origination for the lender. The whole ecosystem benefits.

The important thing to understand is that Finance Matcher does not approve customers who are not eligible for credit. Optionality helps the consumer to close the transaction, but it’s also probably going to be in their best interest as well. It’s on terms that are more affordable to them rather than allowing somebody to access finance that might not be in their best interest. 

Now is the time for a product like this

All three players in a typical retail finance transaction – consumers, lenders and merchants – face headwinds.

For consumers, it’s well documented. We know that inflation, the cost of living and interest rates are rising, which means how much they have left at the end of the month is going down. 

But lenders are facing challenges, too. As interest rates go up, so does the cost of borrowing. If the lender is not a bank, they don’t have customer deposits or balances to borrow from, which means they have to buy money they can lend. So when interest rates go up, they pay more for the money they want to lend, which increases the cost of doing business, which they pass on to merchants.

Now, the merchants get squeezed because they have to pay more for their retail financing at a time when margins are already tight. That means they have less to invest in things like technology and gain a competitive advantage.

So when the checkout finance ecosystem is squeezed, a tool that drives higher approval rates and better consumer experiences without costing any extra, becomes a real differentiator. We’re allowing merchants to be a bit leaner, a bit more effective, to try and move the needle in the most positive way. 

We want to make sure that we have the best merchant tools in the market. Lenders in general may offer similar tools to their merchants and to their consumers. But the difference is, we are building one merchant integration that allows the flexibility of different types of tools, to offer the same value. 

We believe building tools in a way that’s a little bit more universal, that can plug into different lenders but have a consistent, on brand, experience for the merchant, will improve the end-user experience and therefore increase the likelihood of those transactions happening. 

Finance Matcher is one of those tools. Its consumer focus helps to increase conversion, increase education, and drive more business for merchants as a result. By focusing on the customer, we’re helping to deliver better commercial outcomes for our network.

A version of this article was originally featured on the Payments Association website. See: “How retail finance providers can support merchants in the cost of living crisis“.