We all had an unpredictable year in 2020. For most of us, any predictions we might have made in January were likely sent wayward as the pandemic struck.
One prediction that might not have been on lists at the start of 2020 was the meteoric rise of retail finance. The payment method was already a rising star with consumers but, with credit-card payments on the decline, retail finance became the choice for lock-down check-outs.
More volume than ever
All retail finance lenders have seen a rise in uptake over the past six months and that will continue to be the case in 2021. In fact, in Australia, the volume of retail finance actually exceeded that of credit-card payments.
Amid the uncertainty generated by the pandemic, many of us have been restrained in our discretionary spending. Now, as the vaccine is rolled out and consumers see a light at the end of the proverbial tunnel, shopping will commence and retail-finance volume will continue to increase further.
Hygiene factor for consumers
Consumer expectations have changed, and fast, over the last year. In the case of finance, they are used to being offered this service in store and now, rightly, expect the same provision online.
In times of economic uncertainty, demand for credit goes up. Even those consumers who have the cash to pay for items they need up front do not want to diminish their savings in case they need to rely on that cash at a later point – think fear of losing their job or being unable to work due to sickness.
Once these individuals have tried retail finance and seen its many benefits they will expect that service at every point of sale whenever they check out.
Survival tool for retailers
As many retailers capitalised on the value of retail finance in 2020, there are still a huge number yet to try it. And as some offer the payment method in store, others have yet to take the plunge and offer it online.
Retail finance is not just about low value transactions in the short term but also higher value payments in the long term – the average Divido transaction is $1,000 over twelve months at 0% APR.
This demonstrates an opportunity beyond what many retailers traditionally think about retail finance, offering a lifeline to merchants during this period of uncertainty, and beyond.
Retail banks will join the party
As revenues from credit-card payments fall, retail banks are seeing the huge opportunity presented by retail finance. As new market entrants are already in place, eating into banks’ revenue streams, partnering with a third party to get to market fast will be the choice of smart lenders.
Only recently, Citizen Bank launched its retail finance product, Citizen Pay, a move the business triggered to compete with Affirm.
2021 will see a lot of movement in the retail finance space, as smaller fintech lenders put themselves up for sale following their struggle to compete with the larger fintech lenders.
If you needed proof of this trend, only last year Deko was acquired by New Day, and Bread was acquired by Alliance Data.