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Direct-to-consumer? Here’s why you need retail finance

Written by Marketing Team

Selling directly-to-consumers? Or thinking about it? 

You’re not alone. Since the pandemic the direct-to-consumer (DTC) market has been growing at an impressive rate. In fact, US DTC ecommerce sales are projected to be worth $212.9 billion USD by 2024, up from $102.46 billion USD in 2020. 

Cutting out the middleman can help to improve access to your customer data, control the customer experience, improve your margins and get to market faster.

But selling directly to consumers puts you somewhat in competition with the resellers of your products. 

To get close to your customers, you need to offer the same level of service they do. That means free shipping and customer care, but also flexible payment options. With 76% of large retailers in the UK now offering at least one retail finance solution – and as many as 27% offering multiple –  you need to support your customers in the same way. 

The trouble is, most DTC brands are less sophisticated than resellers when it comes to payments. We’re here to tell you how to up your game.

(Hint: it starts with a rounded mix of retail finance products.)

One size does not fit all

Most DTC brands offer Klarna or Paypal at their checkout. These ‘Pay in 3’ and ‘Pay in 4’ products allow consumers to spread a purchase over three or four instalments. Repayments are usually made once a month, with little or no cost to the consumer. They’re great for low value transactions around £300 or less, but are less effective as transaction volumes grow.

Splitting the cost of an £1,800 purchase into three, for example, requires a £600 payment today, another in a month’s time, and another one month later. That’s a lot of money for most people.

The chances are that anyone who can afford to pay this amount upfront probably had that money saved anyway. That means you, as the merchant, are paying transaction fees to the BNPL provider for purchases that consumers can already afford. You’re cannibalising your credit and debit card spend every time someone uses BNPL for a higher value purchase, which doesn’t make much sense.

To get the most out of your solution, you should focus on reducing the monthly repayments so more people can afford to shop with you. That means longer credit terms and higher deposits to cater for a wider range of products, price points and customers.

It’s why you’ll often see a range of checkout finance providers at a retailer’s checkout. Pay in 3 takes care of the low value transactions, while longer term retail finance, like Divido, takes care of the higher value baskets.

Conflicting values

You’ll also want a solution that gives you access to your customer data and control over your user experience. That’s difficult with Klarna, who have their own agenda.

Klarna have pivoted towards a direct-to-consumer model themselves. Their consumer app is a marketplace filled with competing brands. The goal for Klarna is to get customers to spend within their app or at a merchant’s checkout. The more consumers spend using Klarna, the more they get paid.

Which is why the moment someone signs up to Klarna, they start to build a relationship with the customer. What starts with emails about the purchase develops into promotional offers and nurture campaigns. Your customers are reminded to download the Klarna app in every email.

If they do, they’re met with thousands of merchants, many selling products similar to yours. Your company is categorised and positioned next to your competitors, which includes the resellers of your products. For consumers, the app functions as a marketplace with price comparisons, which puts you in a race to the bottom. 

Opt into Klarna and you opt out of control over your customer relationship, their experience with your brand, and their associated data. When your customer buys through the app (which lets consumers browse a merchant’s website within the Klarna ecosystem) or via the website, they become a customer of Klarna’s.

Personalise your payment experience 

In other words, it’s hard to get close to your customers with a Buy Now, Pay Later provider. That’s not to say you shouldn’t have one, more that retail finance can bring you a number of additional benefits that are aligned to your strategic goals. 

Retail finance with Divido, for example, can enhance your finance programme by giving you full control over your checkout experience. That means personalising your checkout journey to showcase your brand as intended. Free, not only from Buy Now, Pay Later providers, but also the interpretation of retailers selling your products. To target the needs of your customers more effectively, to get closer to them and to give yourself a competitive edge.

Value-adds like our Finance Matcher tool give your customers a second chance at finance applications they would normally be declined for. Using an advanced soft-search, customers are given a range of finance options based on their affordability. A customer who has applied for credit marginally outside their affordability are given options with longer credit periods or higher deposits, to reduce their monthly repayments and increase 

We also offer your customers a suite of finance options. Not only can you cover a range of additional customer needs to maximise your finance programme, you also get full control over your checkout finance solution.

Our focus is the end-consumer – like Klarna – but with the intention to improve the outcomes for your business, not to steal them for our own. Providing the best shopping experience for your customers will ultimately drive better commercial outcomes for you, the merchant. 

Make more progress with less effort

Our latest product update, Divido Connect, allows merchants selling into the UK and Europe to offer finance via a single integration. 

Enhance my finance

Become an expert in checkout finance

Our latest research uncovers the shopping habits of 4,000 consumers across Europe’s biggest markets. Learn how shoppers in France, Spain, Italy and Germany use checkout finance, where they spend their money, and how likely they are to use it again. 

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