Alternative Financing

Fortiva Retail SolutionsTo maintain a great omnichannel customer experience, it is essential that retailers ensure that their second look providers integrate into their various points of sale. By Joseph Ferguson and Judy Munden

Credit programs and branded credit cards have become the norm for major retailers as a means to earn repeat business and sell more big-ticket items. However, these programs are often backed by prime lenders like Synchrony and Wells Fargo, meaning that customers must have prime FICO scores (above 700 to qualify) – leaving out the nearly one-half of all Americans who have less-than-prime scores according to ValuePenguin.

Because it can take seven to 10 years to repair credit, this large population of credit-impaired consumers includes viable customers who have strong cashflow, yet may have taken a financial hit several years ago. To help customers access the credit they need for big or unexpected purchases, retailers turn to alternative financing options like second look financing – wherein a provider is able to approve customers who were initially declined by the prime credit option.

While the well-known store credit card programs are natural fits for retailers’ online and physical points of sale systems, it is crucial that retailers demand the same from alternative financing providers in order to protect their continued investment in omnichannel excellence. With an eye on ensuring a great customer experience, retailers must ensure that all financing providers offer a seamless integration into their sales systems, as well as the various financing options their customers need.

Value and Importance of Alternative Financing

The benefits of making financing accessible to credit-impaired customers are significant as these consumers span all ages and demographics. In fact, 43 percent of millennials, 33 percent of Generation X and 20 percent of baby boomers are considered less-than-prime, according to TransUnion.

To reach this diverse audience, retailers turn to alternative financing approaches like second look financing. For example, Fortiva Retail Credit uses a proprietary underwriting system that analyzes data beyond a FICO score to determine a customer’s credit-worthiness, which enables the company to instantly approve 30 to 50 percent of applicants who were initially declined by a prime lender.

“When 50 percent of all applicants are declined (for furniture and mattresses) by primary lenders, second look financing plays a vital role in serving a significant volume of our customer base,” Charlie Malouf, president and CEO of Broad River Furniture - a licensee of 18 Ashley Furniture HomeStore locations - says. “If you are relying strictly on prime customers, you are missing out on business, especially on big ticket items.”

Malouf emphasized the importance for retailers to do their due diligence to find the proper credit or financing options for customers, especially given the myriad of options that may fit depending on the customer’s credit status. While some retailers may offer rent-to-own options to fill the void of prime financing declinations, Malouf notes that a substantial proportion of declined customers prefer the flexibility second look finance terms can offer, such as deferred interest plans on lines of credit – which are great for promoting repeat business and brand loyalty.

Malouf added that retailers who do not offer second look financing might consider reviewing their data related to approved prime credit applications versus declined to identify whether there is a missed opportunity for business. “As retailers, we need to solve for every aspect of the complex continuum of credit needs for our consumer base,” he added.

Ensuring a Fit for Customer Satisfaction

The emergence of omnichannel retail stems from the need to meet diverse client needs and preferences. In fact, Pew Research found that while approximately 80 percent of Americans are now online shoppers, 65 percent of Americans generally prefer buying from physical outlets if given a choice. It is important that retailers act accordingly to ensure a great customer experience – whether in the store, online or using a mobile device. For example, Macy’s profit margin grew more than 250 percent after initiating an omnichannel transformation, according to Centric Digital.

A part of that multi-channel approach involves integrating alternative financing into different points of sale through which a customer may engage. Credit-impaired customers often know they risk not qualifying for credit, and to avoid any embarrassment, they may prefer to shop privately online. Or they may want the ability to become pre-approved for financing before they begin shopping (in-store or online) to make better informed decisions. Eliminating customer anxiety by streamlining operational and credit processes goes a long way towards building consumer brand loyalty.

As retailers begin seeking financing providers to build out their alternative financing programs, Malouf urges retailers to consider the ease of applying, integration with existing payment systems and round-the-clock lender accessibility. This seamless integration is vital for customers at the point of sale – whether it is in the store or on the go.

What Retailers Should Look For

When evaluating financing programs, it is important to make sure they fit into customers’ diverse preferences related to the customer shopping experience – whether in a physical store, on a desktop computer or via smart phone. Key details to consider include:

* Online Integration. Retailers must ensure the financing provider has demonstrated the capabilities to work with the various digital portals they use, including PC portals, mobile devices and the online shopping cart. This is essential for customers who prefer to shop on-the-go and privately.

* POS Integration. Different retailers use different in-store systems. Alternative financing providers must demonstrate the ability to adapt their processes to meet these diverse terminals.

* Strategic Partnerships. Financing providers often form strategic partnerships to better position themselves to fit into different sales and e-commerce systems. This can include relationships with POS providers like Verifone, e-commerce payment solutions or even technology companies focused on bringing financing and retailing companies together, such as Vyze, Storis, Versatile and Lendpro.

* Prime Issuer Integration. With prime lenders often already engrained into retailers’ payment systems, some alternative financing providers integrate with the prime financing process such that, if prime credit is declined, the second look application is automatically processed. This cuts out a step for the customer and the sales staff.

Joseph Ferguson and Judy Munden represent Fortiva Retail Credit, the only second look consumer financing program serviced by a publicly traded company with decades of experience servicing credit-challenged consumers.

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