Myth busting retail finance

Monday 4th March 2024

If you’re new to offering retail finance, it’s understandable you’ll have some questions about its benefits and any potential risks. In this myth busting guide, we’re unravelling common misconceptions surrounding point of sale credit.

1. Retail finance is only relevant for certain businesses

We work with all sorts of organisations, from nationally known high street brands to retailers operating across more niche sectors.

That’s because retail finance isn’t all about the business. It’s about the customers. And most customers these days expect to see flexible ways to pay at the checkout.

Most businesses will benefit from exceeding customer expectations by offering a considered range of payment options, attracting new customers while also retaining existing ones.

We do ask our retailers to meet certain criteria, though we welcome partnerships from businesses of many different sizes and sectors.

2. Finance will make a dent in my profits

We’re offering a way to drive sales and increase average order value… naturally, you’ll be wondering what the catch is.

One of the most common questions we get asked is how much finance will cost. Our answer depends on what finance product you choose to offer. But you shouldn’t expect finance to disrupt your bottom line. In fact, quite the opposite.

Retail finance should help to increase conversions and boost sales. 57% of customers surveyed said they would not have made any purchase without finance being available and 41% stated they spent more due to having finance as a payment option. That’s a huge number of sales and additional revenue secured thanks to the power of finance.

Concerned about declined applications potentially resulting in a lost sale? Our tailoring solution allows eligible customers to change their loan amount, term or deposit to create a more affordable payment plan. This helps to turn declined applications into accepts, which can reduce basket abandonment and drive sales. Furthermore, this all happens before a hard credit search is conducted thanks to our soft search feature, so it doesn't impact a customer’s credit file.

3. Interest bearing finance puts customers off

Interest bearing finance can be a potentially cost-neutral option for retailers, which is one of the main benefits of the product. However, this means customers will be charged a fixed rate for borrowing the money they need – and some retailers fear this cost will deter customers.

In many cases it’s quite the opposite. Generally, customers are willing to pay a reasonable interest rate for the convenience of spreading the cost. Just make sure you clearly communicate the terms of the finance product to ensure transparency and to maintain customer trust.

When you partner with Novuna Consumer Finance, we’ll work closely with you to choose the interest rate your customers will be charged. You can ask the customer to cover the full cost of borrowing or contribute towards the cost to bring the APR down, making finance a more attractive proposition. Together, we’ll create a bespoke finance package with competitive APRs that suit your business and your customers.

4. Interest free credit is unprofitable

Interest free finance can undoubtedly be a more expensive option as you’ll be required to pay a subsidy to cover the cost of borrowing.

However, offering 0% finance is a great way to entice customers and boost sales. It can also improve average order value as customers may be more likely to make larger purchases when they have the flexibility of interest free instalment plans.

For retailers in particularly competitive industries, where competitors typically offer interest free credit, the question is this: can you afford not to offer 0% finance?

We’ll do all we can to help you reduce subsidy costs, too. For example, our unique reduced term functionality gives customers the opportunity to reduce the loan term that was initially applied for. This not only improves the customer experience and lowers the total cost of borrowing, but it can also generate significant subsidy savings for your business.

5. Offering credit is too risky

There’s little risk to your business when you partner with a retail finance provider like Novuna. We’ll manage all credit checks, collect repayments and deal with any defaults.

As offering credit to customers is considered an FCA regulated activity, you will need to be authorised to offer finance though. This helps to ensure all businesses that offer finance do so in an ethical way that puts the customer’s best interests first.

We even offer a few options to help you offer finance without needing to seek FCA authorisation (or while you’re completing the application process). For example, our non-brokered finance option is currently available for golf clubs, football clubs, independent schools or holiday parks, allowing customers to spread the cost with no hassle or admin to consider.

6. Finance makes it easier for customers to get into debt

We often use the term ‘buy now pay later’ to describe ‘deferred’ finance. It allows a customer to walk away with their product or service now, though they won’t start making payments until later down the line.

This is very different to unregulated ‘buy now pay later’ schemes you may have seen elsewhere, where customers can repay a small amount over a short period of time.

Our ‘buy now pay later’ offering is regulated by the FCA. We run affordability and credit checks to make sure credit is only offered to customers who are likely to be able to afford the repayments. This helps to ensure customers don’t fall into unmanageable debt.

This means you as the retailer can enjoy full peace of mind that your customers are being treated fairly and ethically when you offer our finance products.

7. My products aren’t suitable for retail finance

It’s a common misconception that retail finance is only available on high-ticket items. In fact, it can be effectively applied to a wide range of both affordable and expensive products.

We typically offer finance on purchases from £250 to £25,000, demonstrating the wide range of products that could be bought using point of sale credit. Whether they’re buying jewellery or furniture, customers are often looking for a more convenient way to pay.

8. Offering finance will attract the wrong type of customer to my business

This couldn’t be further from the truth. Our own research shows a huge range of people take out finance, including those with a high household income.

For many, retail finance offers greater flexibility and convenience – allowing people to get their hands on the things they need sooner, without having to wait to save up. You could find that offering finance opens up your business to a wider audience – but that’s surely nothing but a good thing.

9. It’ll take ages to get set up and running, which will disrupt my day-to-day operations

Our finance system is designed to integrate seamlessly with in-store POS technology or online systems. In some cases, we can get you up and running in a matter of weeks (if not days!).

Furthermore, there really is no disruption to the day-to-day running of your business. Whether you’re brand new to retail finance or looking to switch providers, our team can work hard behind-the-scenes to get our system set up ready to go live when the time’s right. No downtime, no hassle.

Read our integration process guide to find out more about what’s really involved.

10. The application process will be too long and unwieldy

Retailers are, of course, concerned about how the finance application process will reflect on them and their business. Customers have no time for lengthy application forms, and don’t want to wait around for a decision. So, it’s important any finance offering keeps customers engaged until the very end of the checkout journey.

Our quick and simple application process can be completed in-store, online or wherever suits customers best. It can be seamlessly integrated with all major ePOS systems so there’s no disruption to the customer journey.

Furthermore, customers will get an instant decision, which reduces checkout abandonments.

Get in touch to ask any other questions

Embracing retail finance can improve profitability and improve customer satisfaction for a variety of retailers. However, it’s still important to thoroughly investigate whether offering finance is the right option for your business.

Our team have decades of experience in the retail finance industry, so can provide clarity on any other questions you may have.