Spontaneous, emotional, flexible. These are the new drivers of purchasing and financing - and they are very different from traditional borrowing: cautious, long-term. And they are no longer covered exclusively by "I'm looking for a bank to finance" - let alone a visit to the branch.
So if customers no longer come to the bank - whether branch or online - the bank has to come to the customer. There are two ways to do this:
- Extremely low-threshold offers via mobile devices
- Direct financing ("embedded finance") at the point of sale
Extremely low-threshold offers via mobile devices
The first approach is most effective when targeting existing customers and their penetration - low-threshold can be a 1-click offer or proactive wallet functionality, for example. Payment providers with high user coverage in eCommerce are important players here.
However, our focus is on the second approach.
Direct financing ("embedded finance") at the point of sale: a growing market
The topic of "financing at the point of sale" is nothing new - regardless of whether you financed your car 30 years ago as a consumer or your kitchen 15 years ago (like I did) or have recently started offering dynamic financing frameworks in B2B (à la Banxware) - the market exists and continues to grow. As long as money doesn't grow on trees or in central banks, something else will have to accept a decline for this growth.
But what has changed?
Consumer preferences have changed and the technical possibilities for responding to them have grown enormously.
Changes in the consumption and financing sector
Traditional goods have already reached a high financing rate (new cars approx. 50%, used cars approx. 34%). Even less obvious goods are already covered (e.g. kitchens at approx. 40%).
The question here is not whether financing is provided, but which provider implements the financing. In addition to the providers (above all the automotive banks, but also increasingly the financing subsidiaries of other manufacturers), there are established players in the captive and consumer goods market and increasingly (coming from below) the payment service providers with their buy now pay later initiatives.
But there is still room (especially for used cars) and topics that are not as advanced. One example is home renovation and everything that goes with it. How high is the financing rate of gardeners and landscapers, for example? And which tradesmen around the house already offer financing? Not counting the subsidy programs - the proportion is so small that it is almost impossible to find reliable figures.
What does this mean for a bank?
The building blocks are known, but are at different stages of implementation. To remain competitive, the following issues need to be resolved:
1. know your "hot spots" with customers
Every financier now has to answer this question - what is my special feature, my unique selling proposition (USP)? Why do customers come to me? Which customers are they? Every new product and every new sales channel ("market") must be checked for its relevance in this respect. A good question to ask is always: "Why do I have the right to win this competition".
2. digital becomes (is?) normal
Over 50% of all consumers have already experienced an at least partially digital process for financing. From the consumer's point of view, the advantages far outweigh the disadvantages. Some new generations are no longer familiar with "traditional" loans - and in future, with the exception of real estate financing, almost all B2C financing will become digital. The same is now expected for a large number of B2B financings.
And this will then give rise to the final competition - do end consumers and smaller companies finance directly at the point of sale or do they separate the purchase decision from the financing decision. From the perspective of many surveys, the answer is clear - more and more financing is being provided directly (and therefore digitally).
3. niches are much bigger than you think
The example of gardening and landscaping mentioned above is just one. There are countless goods and services that are not only or hardly ever sold online. The question of their financing always arises. Finding your own niche and consistently occupying it is key. The paths can be different (central vs. regional), but the goal is to involve the actual PoS owner and thus position an offer that the customer can accept.
4. in the end, it's all about the money
All of these ideas and approaches must earn money for the institution when implemented and must be profitable. And this is based on a smart combination of in-house market and customer knowledge and technological implementation with a high degree of automation and flexibility. This in turn creates a perfect fit with customer needs and at the same time supports internal processes and (there they are again) increasingly demanding supervisory regulations.
Conclusion: Innovation and partnership as the key to success
The future of financing lies in the perfect symbiosis of technological progress, customer orientation and innovative financing approaches.
NAVAX Software GmbH supports companies from the areas of manufacturers, captives, banks, leasing and factoring companies in the digitalization of their core business and in the development of new customer groups and sales channels. With 30 years of market knowledge, we are one of the most experienced players and your innovation and transformation partner.
Get in touch with us. We may also be able to offer you added value.
