The relentless growth of retail finance was underscored by a report released by the Financing and Leasing Association, which found that retail lending in the UK grew by 9 per cent to just under £9bn last year. Within that, Apex Insight estimates that retail point-of-sale (POS) finance accounted for 1.5 per cent of total retail sales.
This upward trajectory is set to continue, with total retail finance expected to hit £12bn within the next five years, and Apex predict that the share of lending attributed to POS finance will breach 2 per cent in 2018.
Why is retail finance booming?
One of the biggest misconceptions of retail point-of-sale finance is that it is the preserve of people who would otherwise be unable to afford the purchase. Research to the contrary is abundant, and, even among wealthier shoppers, uptake is high. The reasons why? Well, in many cases, the opportunity to spread costs over an extended period, at little or zero extra cost, and in a convenient manner, makes complete sense.
Retail finance brings with it numerous other consumer benefits too. Monthly instalments, rather than a lump sum, invariably make a price tag seem more palatable, particularly when it comes to costly items, and/or in the event that you are forced to buy something unexpectedly (e.g. replace something that is broken). And ultimately, rather than having to defer buying something due to hefty upfront costs, or expensive borrowing alternatives, retail point-of-sale finance is a great enabler for those who'd rather have the product in their grasp here and now.
Consider, too, the present economic backdrop: waning consumer confidence and difficulties in terms of real wage growth. Many retailers on the high street have felt this first-hand in recent times. Retail finance is therefore a great way to boost customer basket sizes and overall revenues.
The efficiency of retail finance is also alluring for both customer and merchant too. The former needs to do little more than click a button, while the latter takes on no risk, as the full value of the item(s) is credited to their account once the purchase is confirmed.
What sort of uplift can you expect?
There are two strands to expected uplift and conversion as a result of facilitating retail finance. The first is the proven boost it provides to the value of existing shopping carts. After all, a reduced upfront cost of buying one item frees up greater budget to acquire others.
The other element is that it helps to convert a greater volume of customers. A recent study by Forrester found that offering finance can increase your sales by 17% and order value by 15%, on average. Numerous other studies put this figure even higher; touching 50 per cent in some cases.
How do I know retail finance is right for my business?
Whether your business sells expensive goods (the traditional use of retail finance), or lower cost goods (a market recently opened up by Lending Works’ Pay in 3 product), retail finance could be right for you.
Naturally, you need to assess your individual circumstances. Weighing up your profit margins is important and determining whether interest-free finance options, which have become so popular, are viable for you.
Yet, perhaps with a few exceptions, the likelihood is that providing retail finance to customers will give your sales a significant shot in the arm and enable you to steal a march on your competitors as a result. Retail finance has firmly established itself in the retail sector over the past five years, and all signs are that it will continue to be adopted at a rapid rate by merchants across various industries within the UK.