September 23 2008

Guest Comment: Should you be building consumer credit facilities into your online offering?

Against a background of unprecedented turmoil in the global financial markets it's perhaps not the ideal moment to be making the case for consumer credit. But, as able2buy's chief executive Paul Clouting explains, being able to offer shoppers instant credit online for major purchases might just make all the difference

The retail sector cannot escape the effects of the credit crunch. Consumers and online shoppers do not have the levels of disposable income they might once have had and are much less likely to rely on their credit card or dip into much needed savings to finance a key item purchase.

But there is now another alternative and it's no longer the preserve of the large high street retailers and department stores. Ecommerce sites are increasingly waking-up to the sales benefits of offering consumer credit facilities.

Coincidentally, many of the retail markets that traditionally encouraged in-store credit arrangements such as fixed monthly repayment schemes are the very ones that have successfully transferred into the ecommerce arena. So, for example, higher value items such as furniture, electrical, fitness equipment and white good appliances are all now extensively sold on the internet, not to mention prominently featured online through the explosion in comparison websites.

The customers that buy these items typically prefer to spread the cost over a period of time more suited to their budget and therefore online credit facilities need to be provided or a sales opportunity may go begging.

At the heart of this demand are a new breed of businesses such as able2buy that act as brokers to the retailer, working on behalf of financial lenders to offer a range of consumer credit products — for example 'buy now, pay later', interest free credit or low cost finance options that can be tailored to the individual retailer's specific product lines.

Where once this finance would only be available to larger high street retailers or department stores, some brokers are now putting no restrictions on the size of retailer they will work with or the amount of credit business they produce.

Smaller and online retail businesses that might once have struggled to attract such finance deals can now, subject to a viability check by the lender, be offered a range of attractive agreements and, crucially, once consumer credit has been agreed, all the financial risk is carried by the broker and the lender. If a customer defaults on a payment, the retailer is not out of pocket.

Whilst many online shoppers may today be reluctant to pay by credit card, they might still prefer to pay for their goods in instalments so it beholds the internet retailer to make sure that alternative arrangements that reduce the likelihood of that shopper browsing elsewhere are in place. This includes technology that enables consumer credit facilities to be seamlessly integrated into an ecommerce website so a customer can apply for credit at the checkout.

A shopper's credit application and verification process must also be kept simple, secure and immediate, ensuring fewer cancelled sales and faster payment without any of the risks of default. A decision on credit availability needs to be made within seconds so it is as easy as a customer paying by credit or debit card.

Once they have secured consumer credit facilities, internet retailers also need to do everything they can to market its availability, maximise consumer awareness and encourage take up of the finance deals. Just as any in-store point-of-sale materials need to be high profile, direct and eye-catching, so website home page banner adverts need to extol the benefits of, for example, 'no deposit' or 'interest-free' shopping.

Product pages too should confirm monthly payment options and APR comparisons and the finance 'sell' should continue right up to the final checkout/basket stage of the online transaction. Most reputable providers of consumer credit should also be including this type of marketing advice and guidance as part of overall customer support.

In conclusion, any retailer considering consumer credit should be seeking a system that:

• Can be used in all points of sale — ecommerce, high street, mail order or any combination of these
• Is fully automated so retailers don't have to handle any paperwork to process credit agreements
• Is quick and easy to use by both the retailer and consumer, providing an instant credit decision
• Is accurate, so documents don't need to be returned (leading to loss of sale)
• Has comprehensive support including account management, marketing, IT and helpdesk

A change of mindset is perhaps also needed. People must avoid thinking that by promoting credit one is automatically encouraging irresponsible borrowing. In these difficult times, consumer credit has enormous economic benefits for retailers and shoppers alike.

Paul Clouting is the chief executive of Salford-based able2buy, a leading provider of consumer credit facilities.

by Sarah Clark (Web Editor)