The POS Financing Surge: New Story Of An Old Solution
Skeps is the first point of sale platform designed with the merchant and consumer-first approach
It is now easier than ever to make large purchases thanks to the emergence of point-of-sale (POS) lending, making it a boon for merchants, fintechs, and lenders alike.
POS lending allows consumers to split the cost of large purchases into regular installments and unlike credit cards that have a set credit limit and interest rate, POS loans are determined for each individual purchase usually with lower interest rates than credit cards.
Today it comprises a small fraction of the broader personal loans market but its unsecured lending volume in the US and India continues to climb. From 8 per cent out of the total $1.15 trillion in outstanding unsecured lending in 2018, it’s expected to reach 11 per cent, or $162 billion, in 2021.
Most traditional banks and credit unions are still in the early stages of assessing POS lending strategies, putting them at risk of missing the scale and pace of disruption and the size of the opportunity. While the growing number of POS lenders is good news for consumers, it may not be so positive for traditional banks and other mainstream lenders.
With its growing popularity and demand, the POS financing space is seeing a wave of fintech companies emerge in the past few years. These companies have partnered with thousands of popular retailers, giving them access to millions of shoppers.
The fintech innovators have recognized that merchants and consumers want options, and these options may depend on the type of purchase, geographic region and consumer demographics. Traditional players exploring the POS financing option have a limited period to enter the market and grow.
Skeps chief executive officer Tushar Srivastava told Entrepreneur India, “Around 2017, the team realized that there needed to be a way to solve the long-standing problem of how large institutions addressed consumer loans. There were, and still are, issues both on the consumer and merchant/lender side. Merchants have requirements to work with multiple lending institutions to find the right financing program for all of their customers, however, this can negatively affect consumer credit scores. So, in thinking about how technology could address this issue in order to get institutions to offer loans that were right for each unique consumer while limiting offers that would not fit and thus harm consumers, we turned to a technology that was growing in popularity; the blockchain. Prerit had been researching the uses of blockchain technology at the time and proposed we look into its application to this specific problem. We started investing in blockchain technology in 2017. Prerit, our chief technology officer, became a certified Ethereum developer and hired a team of 3-4 developers to train them on blockchain stack; this included smart contracts, information sharing protocols, encryption, etc.”
The consumer loan industry mostly operates through a ‘waterfall’ approach. Lenders are pre-stacked in order and the consumer application flows from one lender to another until the customer gets approved or finds the right product. In the process, the customer gets multiple declines. Their credit score gets negatively impacted and they may end up with sub-par offers. By using blockchain, the company saw that it could streamline this process and that is how the journey started. It took them 18 months to build the complete platform that fits the regulatory requirements of all the information sharing protocols, and they did it successfully, he further shared.
Srivastava believes that until Skeps was created, all POS financing platforms had been issuer-built platforms. They have several limitations from the merchant and consumer requirements. Some of these limitations include lack of multi-lender support, a lack of ability to plug-in additional financing products and to customize user experience and branding. Skeps is the first POS platform designed with the merchant and consumer-first approach. It gives merchants complete control over revenue and cost associated with POS financing while offering a best-in-class user experience to their customers. This innovative technology is what drives their belief that Skeps will change the way institutions meet and deliver the demand by consumers for loans and financing solutions.
The fintech startup Skeps has announced the closing of its Series A round, recently. The startup has bagged $9.5 million from Bertelsmann India Investments and existing investor Accel.
The new funds will be used to expand the startup’s sales, marketing, engineering, and product teams, grow their merchant and lender client base, and broaden services offered to their customers.
The platform is currently building a robust network of issuers and merchant partners. This creates a double network effort whereby their issuers bring their merchant partners and in turn these merchant partners ask them to switch on additional lenders, based on their financing requirements. They are also forging strategic partnerships with other players in the market which will allow them to accelerate their distribution.
Financing is a highly regulated industry, with very strict and well-laid out guidelines on how information can move or live across different systems. Due to this, the company has worked closely with consumer bureaus and banks. Their work together has ensured that their platform complies with all necessary guidelines and that they get quick approval from the major institutions.
According to Srivastava, the POS financing and buy now pay later (BNPL) space has a global focus and worldwide relevance. It also continues to grow at an exceptional pace. Consumers, particularly millennials, have shown strong inclinations to pay for goods through POS or BNPL as opposed to credit cards. This demographic, and consumers broadly, see the benefits of fixed installment loans. These loans are conveniently offered during the purchase journey and instantly fulfilled, without high-interest rates or potential damages to credit scores. All current participants in this space are responding to address the demand and we are seeing a lot of activity along these lines like the example Square: afterpay acquisition, the Amazon/Affirm partnership, etc. In the long term, the platforms that remain focused on positive consumer experiences - the ones that work to ensure that consumers are presented with the right product, with the highest likelihood of conversions, will win.
“We have a growing presence in the US market and are looking to expand across geographies,” he further commented on his future plans for the establishment.