In a much challenged environment, retail finance can be key

Mike Dawson, CEO of the retail finance ecosystem Deko, explains why a more flexible, multi-lender, multi-product approach can improve choice for consumers while also maximising the acceptance rate at the checkout for merchants.

In most cases, the last 15 months have been a bruising time for SMEs. A recent McKinsey SME study showed 65% of respondents reported that revenue had reduced somewhat or reduced greatly as a consequence of the pandemic.

With the vaccine rollout and lockdown lifted, the picture has become brighter for retailers, but the economic impact from the pandemic could yet continue to hit demand. This means that retailers need to utilise all the tools at their disposal to make sure customers feel confident enough to convert a browse into a purchase, including retail finance.

Such a conversion is increasingly vital in the context of the other seismic shift we’ve seen as a result of the pandemic: the accelerated pivot from bricks and mortar to online retail. During 2020, almost half of consumers made a new online purchase that they previously had only made in-store.

Given this backdrop, retail finance looks likely to accelerate its role in helping SME retailers to maximise sales.

A new approach to payments

BNPL (Buy Now Pay Later) has seen a surge in popularity over the pandemic, with its market share expected to more than double to 26.4 billion by 2024. But perhaps even more crucial are the consumers driving this trend: 40% of millennials and 57% of generation Z’s have used BNPL. This hints at the increased prominence that the service will have in the coming decades as both generations’ spending power increases. It also demonstrates that retail finance is not just a tool for the economic transition, but is here for the long run.

Retail finance owes its rise in part to how it benefits both partners and consumers. Partners that integrate retail finance into their offerings are able to attract a wider pool of consumers, who may not be able to pay for a product in one lump sum. It can often be a key deciding factor in whether or not a purchase will be made. For example, we see that 42% of gen Z and 69% of millennials are more likely to make a purchase given the option of a BNPL service.

For consumers, BNPL flexibility offers the opportunity to more effectively manage outgoings, as it enables costs to be spread across multiple payments. Of course, this is applicable across retail sectors and basket sizes – but it can be crucial for larger purchases. This is an area of focus for Deko, which offers a range of credit solutions that are well-suited to bigger baskets that can be a more involved purchase for many customers. Deko has helped millions of customers convert their basket to purchase and has ensured that thousands of retailers have improved conversion rates since launching in 2010.

Retail finance in practice

Payment options for larger basket sizes can be particularly useful in sectors like home improvement, furniture, sports and hobbies that have seen increased activity during lockdowns. Deko has multiple established partners in this industry who have implemented Deko’s solutions to facilitate their retail finance needs. By doing this, more customers were able to be accepted for finance through the firm’s multi-lender platform, and customer experience was streamlined – giving consumers a more cohesive payment process. This has resulted in an increase in both customers applying and being accepted for retail finance and therefore better conversion rates.

Another sector that has benefited from flexible payment options is education. A number of providers have enlisted Deko to provide a flexible finance offering to customers who are unwilling or not in a position to pay for their services in one lump sum.

A changing environment

Just as with the transition towards digital retail as a whole, the changes the pandemic has prompted are unlikely to reverse once Covid is eventually in hand. The receptiveness of younger demographics towards BNPL illuminates why the sector will continue to see an increase in popularity over the coming years. The tangible benefits demonstrated by flexible finance show why retailers – especially SMEs, who are more likely to have been under strain due to the pandemic – should consider retail finance as a potential key converter between prospective and confirmed customers.