The red lights are flashing. Credit is becoming more expensive, lenders are becoming more restrictive.
Yet consumers are still spending. They still want to spend — and they may need some help in the current environment, even though unemployment is low and wages are rising. Inflation has been a rough headwind.
It’s still the case that FICO-scored prime consumers will be at the top of the traditional bank-based lending funnel — and it’s true that they offer lower credit risk and cost of capital for lenders. But there are consumers across the spectrum who need to transact, and who can benefit from the services and offers generated by specialty lenders.
Vicki Turjan, president at Versatile Credit, said there’s evidence that offering a range of financing and lease-to-own product offers from primary and secondary providers — aided by advanced analytics — at the point of sale can help merchants close the sale and consumers to get what they want.
As she told Karen Webster, that evidence shows up in Versatile Credit’s own results as the company connects a marketplace of lenders to merchants who want to offer promotional financing.
“We had a record fourth quarter, and we had a record first quarter on volume. That means that promotional financing and financial product choices are more important than ever.”
People are still shopping, she said, but they’re also finding value in spreading payments out over time, in using lenders’ money instead of their own to get what they need. Installment plans are gaining favor, but no matter whether buy now, pay later (BNPL) or traditional revolving options are the financing plans that hold the most appeal, Turjan said a few things drive retailers to the platform.
“There are two philosophies we find with our retail clients,” Turjan said. On the one hand, there are merchants fully invested in using credit to drive sales — and others want to save the sale.
The appeal stretches out across all credit profiles, across all FICO bands. In fact, more affluent consumers are taking advantage of promotional financing, against a backdrop where, as PYMNTS has found, a growing percentage of individuals making more than $100,000 annually are living paycheck to paycheck. The prime and super-prime tranches of the FICO spectrum, she said, are degrading a bit, to the point where secondary lending offers both drive and save sales.
Having prequalification functionality embedded in the platform makes consumers more apt to apply for financing. A broader range of options in the mix through the “credit cascade,” she added, makes it more likely that the financing will be enough to incentivize a consumer to commit to making the transaction — especially in elective healthcare, a space Versatile Credit entered in 2021 and where the firm has been active with dental support organizations to offer financing to underpin various dental procedures that can be long-lived and expensive. This strategy is not limited to healthcare; the principles of the credit cascade apply across verticals. For example, in furniture, the credit cascade that gets consumers as close as possible to the “target financing” they need can also allow them not just to buy the proverbial couch they want, but the end tables that have caught their eye too.
“This creates a loyal customer,” she said.
Converting Browsers Into Buyers
“We’re trying to offer something that they can actually utilize in order to become a buyer,” Turjan said. “You want to make the most advantageous offer available to that customer so they can get the dental work they need — and having an automated system makes it more likely that will happen.”
The advantages can be significant for the merchants offering promotional financing, Turjan said (though the initial cost might be a bit dearer as measured in merchant discount rate charged as transactions are processed).
Consumers don’t stay at the same FICO score forever, Turjan noted — they may have had some setbacks such as job losses or divorce. The forward-thinking retailer wants to grow with its client base, to service the needs of the no-credit or subprime credit client, because over time, they move up the credit spectrum as life stabilizes and they wind up using credit more, and more often, later in life.
“This is an important part of any credit ecosystem,” said Turjan. “All of these alternative lenders have a role to play and they are critical.”