By Robert Flowers, CEO of DivideBuy
Traditionally, when customers make purchases using the interest-free credit model, a technology company acts as a broker between the lender and the customer. As a result, the lender cannot influence the technology being used, so there is a disconnect. This disconnect can add additional cost to the purchase, makes the transaction process longer and less efficient, and leads to customers abandoning their basket in fear of receiving a negative mark on their credit score. However, by combining the lending and technology companies together, you can cut out the disconnect, instead delivering a service that packs a bigger punch with quicker response times and better usability.
When it came to traditional LendTech services, the lender and the technology provider have always been separate companies. It makes sense, as you need to have enough money in the bank in order to pay merchants in advance on behalf of customers. This is simply not doable for most companies. So often a LendTech company will partner with a bank who can provide the funds necessary and allow the LendTech to focus on making the technology.
This has been the easiest way of offering credit in the past… at least for the companies involved. For the customer, having two companies involved in the process can actually be a major detriment and, in my opinion, is one of the core reasons the LendTech industry hasn’t taken over as a mainstream alternative payment method like so many other offerings on the market.
According to Deloitte’s 2020 Retail Industry Outlook, “convenience matters – now more than ever”. In the report, Deloitte goes on to explain that the consumer is more focused on the ownership of a product, rather than the experience of purchasing it. Essentially, consumers are accustomed to being able to make large purchases, such as cars, in instalments, meaning they no longer have to wait for expensive items or spend all their savings in one go. This shows that, when it comes down to it, the easier the process is the more likely consumers will use it.
While LendTech’s are convenient because they allow payments to be split up into instalments, that is where the convenience ends. But there is a way to fix this: by merging both the technology developer and the lender.
This is no good, but there is a way to fix this and its simply to merge both the technology developer and the lender.
A wide gap to cross
A lot of the problems that interest-free credit faces currently comes from the process of using it. This process is too slow and simply inconvenient for most consumers. The process often requires a lot of information the first time it is used by the customer as the lending banks need to be able to run a credit check. This way they know whether lending money to this customer would be a sensible decision or not, which makes sense. A bank doesn’t want to be lending out money to customers who have a track-record of not paying it back.
The problem however comes with how long this process takes. The customer will use the technology to input their details and then this is sent onwards to the bank. But depending on the response time of both the technology provider and bank this could take some time. The bank then performs a rigorous checking process against the customers credit history and makes a decision, before sending this decision back to the technology who has to forward it on to the customer. This process is not instant and might need to be done multiple times depending on how many products are being purchased which could be a massive turn-off for most customers.
On top of that, it may appear to be to much of a gamble for a lot of customers who don’t get any visibility on the process or how this might affect their credit history. It would be terrible if a customer went through the whole process only to be turned down by a strict lender, even worse if this failure ends up marked on the customer’s credit history, lowering it further. For many, this is a risk not worth taking and so conversion rates from regular payments to instalment-based payments remain low.
These problems are caused primarily because of the separation of technology provider and credit lender. This separation means that neither company have full visibility over the workings of the other and this limits the technology that can be made. It also treats the technology provider as a middleman, connecting the customer and the lender instead of just allowing them to interact directly. This slows down the whole process which is a major discouragement to the consumer.
That means the solution to the problems interest-free credit faces is to simply fuse the two companies together and have a LendTech who acts as both the technology and finance provider. This offers the one company full control over the whole process and means the customer can interact directly with the money provider. The latter greatly increases the speed at checkout, and by utilising AI this process can become even faster. Then for the former, this full control can allow the provider to be more lenient with acceptance rates and allows for the development of technology that checks credit history quickly and even before reaching the check out. This acts to not waste the customers time and offers more visibility to a consumer’s credit history without the need to take a risk (as simply checking your chances wouldn’t leave an impact on your score).
Of course, this is easier said than done and many interest free credit providers have likely not gone for this method as it requires a lot of heavy investment. However, it is perfectly doable and DivideBuy is the perfect case study to show this.
A case study for the future
DivideBuy is a LendTech company that acts as both the money lender and the technology developer. Thanks to heavy investments of over £60 million, DivideBuy has the capability to lend out money to consumers and has full control over its acceptance rates. Because of this, DivideBuy has an acceptance rate of over 90% having reduced the rate of declines by providing options that can take a higher deposit or a guarantor into account, providing almost instant acceptance. This is thanks to the belief that lenders have a responsibility to be upfront with consumers from the start, with no hidden charges, a high rate of acceptance and a readily available customer service team.
Then by having full control over the lending process and technology development process the company can create technology that benefits the convenience of the consumer, such as giving full visibility to the instalment division and insight into how, if at all, it will effect the customers credit score ahead of them reaching the checkout. This increased invisibility supplies customers with the insight to make responsible purchasing decisions.
It is essential that merchants understand the benefits of providing a wider range of options for their customers. Retailers understand that if they don’t offer interest-free credit, their competitors will but in order to get more customers to use this option it needs to become more convenient. The traditional method of separating the tech provider and lender doesn’t support this convenience. So, if we want the LendTech payments industry to thrive its important that retailers find a provider who can put both the “Lend” and the “Tech” Into LendTech.