JP Morgan Chase recently launched a point of sale financing scheme. Fintechs have led the way in this area, but the bank’s entry confirms this is a rapidly growing fintech space.
JP Morgan Chase (JPMC) has become the first major bank to enter the point of sale financing (POSF) space. Up until now, fintech firms have dominated this area. It is not yet clear whether other banks will follow them into what Forbes calls a “hot fintech space”.
POSF allows consumers to quickly finance large purchases with interest-free loans which are set up at the point of sale. This trend began to emerge in 2016. In that year alone, merchants in nine countries received 160 million point of sale loan applications and approved 53% of them.
Millennials have been a major driving force behind the growth of POSF. They expect to borrow money to finance large purchases and want an instant decision. The size of the POSF market is now reportedly US$391 billion –3.5% of annual consumer spending.
POSF is attractive for consumers and businesses
POSF has advantages for both businesses and consumers. Giving consumers more flexibility when it comes to paying for goods and services boosts sales. One study showed a 32% increase in sales when retailers offered POSF.
Enabling consumers to finance purchases with long-term loans rather than credit cards also leads to higher value sales. “When done correctly, POS financing is a win-win for both businesses and customers,” says Miron Lulic, founder and CEO of SuperMoney.
For consumers who are keen to avoid being hit with credit card interest payments, many prefer the stability that POSF loans offer.
Advances in technology mean POSF is now cheaply available to small businesses. For example, Blispay does not charge businesses interest if customers repay loans within six months, with the fee rising to 19.99% after that.
Who are the major players?
JPMC is entering the space to capitalize on this lucrative area of business. But most banks were slow to get into POSF. Up until now, it has mainly been the domain of
However, more people are taking out personal loans from banks than ever before. This has provided opportunities for collaboration. Three US banks saw a considerable uplift after they started collaborating with GreenSky, whose technology allows contractors to offer instant loans and credit lines.
Key to success in the POSF marketplace is offering finance backed by an excellent digital experience with minimal barriers. As GreenSky proved, those that can build connections between banks and financial networks are well placed to succeed.
While banks can offer finance options such as credit cards, overdrafts or loans, they are time-consuming to set up. The paperwork required deters consumers, making them unsuitable for instant decisions at the point of sale. They lack the technology needed to offer immediate decisions.
Europe and the US lead the way, Asia trails
Europe and the US are ahead of the rest of the world in offering POSF services. The majority of people in ASEAN remain unbanked, leaving POSF in the region vastly underdeveloped. Just 36% of people in Indonesia have a bank account. In Vietnam (31%) and Cambodia (22%) the figure is less.
Many of these are focused on peer-to-peer lending rather than marketplace finance. Nevertheless, the alternative finance market is growing and could expand to include POSF. “Fintech is a rapidly changing industry and inevitably brings in positive changes to the market…however, technologies connected with scoring, personal finance and other areas will definitely stay in focus in the long-term perspective,” predicted Sergey Sedov, CEO of Robocash Group.
In Singapore in particular, the region’s established fintech hub, there may be potential. 96.4% of people in Singapore have access to a bank account and several marketplace lending fintechs already exist.
Throughout Southeast Asia, the size of the middle class is growing. Rising disposable income will mean more financial flexibility and payment options. More than half of the population is under 30 – the same demographic that has driven the rise of POSF in the West. All of this suggests ASEAN could be on the cusp of adopting POSF options. Yet barriers remain.
The digital infrastructure in ASEAN is the largest barrier to POSF
Right now, there
However, it is quite a leap from buying things using a QR code to obtaining personal finance in the same way. Furthermore, in ASEAN, there is a lack of a ‘know your customer’ framework. Retailers need to be able to quickly and securely access a customer’s data to provide financing options. Without access to consumer data, retailers cannot make an informed and instant decision on lending options.
“A lack of digital infrastructure readiness and unaccommodating regulatory frameworks for digital banking/fintechs have prevented the rise of banking digitisation outside Singapore,” a Price Waterhouse Cooper report assessed.
Jeremy Tan, CEO of Liquid Pay, told ASEAN Today that a fragmented payment landscape also represented a barrier to POSF adoption across ASEAN. He cited “the lack of a cross-border unified point-of-sale platform that can integrate the acceptance of all payment apps and networks” as a major obstacle to POSF implementation.
He acknowledged that there is an immense opportunity to “leverage financial technology that can create bank-grade digital scorecards to determine consumers’ credit-worthiness using alternative data sets.” For Mr. Tan, this dataset could include mobile behaviour. Access to citizens mobile habits offers unprecedented opportunities in the digital lending sphere.
In the West, POSF is likely to expand as more companies see it as a way of boosting sales and advances in technology make it more readily available.
In ASEAN, the picture is different. In time, there may be a demand for similar schemes. However, at the moment, the infrastructure is not ready to accommodate it. As more of the population enters the banking system, either via traditional methods or using mobile banking, so the framework for alternative lending options will develop. But those lending options may not include POSF. ASEAN has, in no small degree, bypassed card payments by shifting from cash transactions towards digital payments. A similar trend could play out in the alternative lending space. In Southeast Asia, where cash-on-delivery remains prevalent and online spending is growing, POSF may not generate enough return for lenders to justify introducing it.