Nov 20, 20185 min read

The trend of in-store financing: 3 pros and 3 cons.

Kristian Borglund headshot

by Kristian Borglund

“In-store financing” as a payment method is entering new markets around the globe after getting lots of love from merchants and customers in Nordic countries. Here are some of the pros and cons of this new way to serve customers and increase sales.

As of May 2018, in-store financing is already used by 250 merchants in over 1000 physical stores in Nordic countries. It has also recently been made available in Germany, Austria, Switzerland, the UK, the US and the Netherlands.

The payment method is brought to market to complement cash, debit and credit card and Apple Pay. It gives customers a convenient opportunity to pay later (via installments or a single deferred payment) – without hassle, and without adding financial risk for merchants.

Let’s look into some of the benefits of in-store financing as well as some of the downsides you might want to consider.

1. You’ll make it easy for the customer to shop before payday

Think about how many sales you miss every month because of people not having access to money at the precise moment they feel “I want to buy this”.

In-store financing enables people to buy that new fancy shirt, those new shoes or even that new MacBook Pro before they have the money stacked up in their bank account – something that people without a credit card usually can’t do.

Mikael Blomquist, retail manager for Apple premium reseller Digital Inn in Sweden, says:

“The greatest benefit for us is how customers feel more comfortable when buying from us. The old-fashioned way of financing wasn’t well liked by our customers as they had to share so much private information with our store staff. Besides that, it took at least 10-15 minutes, while now their purchase is complete in one minute. I’m sure this brings us more returning customers because it’s so smoooth.”

The downside: Not needing to wait for payday could encourage more people to impulse buy and later change their minds, leading to increased returns.

2: You can say: “Why don’t you take it home to think about it? You don’t need to pay now.”

Imagine all those customers who can’t make up their minds. Maybe they say they want to “think about it”, or maybe they want a second opinion from a friend. Think what a positive difference it would make if you could say “Why don’t you take it home? You don’t need to pay now. You’ll get an invoice to pay later, and if you want to return the product, we’ll credit the invoice so there is no need for any financial transaction.”

The downside: Again, this can lead to more spontaneous shopping by some people. Expect more returns, and consider the opportunity costs if items go out of stock.

3:  Turn a big purchase into an affordable subscription

There are many potential customers who find it difficult to afford big-ticket items. In countries such as the UK and the US, almost all high-value purchases are made via financing. In-store financing means you can offer your customers the option to break down their purchase into 3, 6, 12 or 24 small monthly installments instead of funding everything upfront, very much like subscribing to Netflix or Spotify, but in this case, they will own the product the whole time.

The downside: Your company will be top-of-mind for the customer once a month for as long as the split payment period lasts. Even if they hold your brand in high esteem, they may start resenting the bills. However, the shadow is unlikely to fall on you if you let a third party payment provider take care of all the communication related to the in-store financing following the purchase.

How it works

The smooothness of this payment method is another reason why it’s becoming so popular. It’s easy even for you as the merchant – and you get the full payment almost straight away.

Here’s how it works:

You ask the customer for their phone number or their email address, enter it into the system, and immediately they receive an SMS or email with a clickable link.

Once the customer has clicked that link on their mobile device, they get directed to a checkout page, which is >localized for their market.

“The process is designed to be smoooth,” says Mat Perkins, who is responsible for in-store at Klarna. “It takes about 60 seconds the first time they buy using this service, then around 15 seconds for subsequent purchases. There is no need for a customer to enter their address again the next time they shop this way.” Once the system has double-checked the payment reputation of the individual, the customer can leave the store in delight, with their purchases in their hands, without having paid a thing. If they buy on invoice, the invoice is sent right away with up to 30 days to decide if they are keeping the goods before payment is due.

“Merchants are guaranteed funds once we approve the purchase, with money transferred to their bank accounts daily,” says Mat.

What’s next for in-store financing

This way to shop will become a new standard, not only in retail but across all commerce sectors.

“It won’t be long before in-store financing is used in grocery stores and coffee shops as well. It’s just a very smoooth experience to pay this way,” says Mat.