Financing at Check Out is Driving Up Competition For Lenders

Checkout screen for a cart purchasing an expensive golf club, featuring the option to check out with PayPal Credit.

For many consumers, the real cost of taking on a large loan has never been the most transparent of processes. Even the interest that can rack up on an unpaid credit card bill can come as a surprise for many.

But the increasing prevalence of ‘personal finance loans,’ an immediate loan offered at a growing number of retailer checkouts to cover a customer’s purchase, is bringing a level of transparency and competition to the lending and credit space previously unseen.

“These products are coming in and showing [consumers] the end value. You bought a couch for $1,000 and on X plan you will have spent $1,117 in total if you pay within the next 12 months,” Mike Landau, payments analyst at PwC, told Tearsheet. “It’s laid out for the consumer in a way that’s easier to consume and digest.”

Transparency for Consumers, Competition for Credit Cards and Lenders

By opting to finance their online purchases through lenders like Affirm, Klarna, Bread, or Vyze, consumers can also skip inputting their credit card information, filling out any paperwork or waiting for loan approval or a credit card to arrive in the mail.

The volume of shopping that happens online grows every year. At the same time, consumers are concerned over hacked credit card information. Cue the flourishment of  point-of-sale financing upstarts—and they’re not the only ones giving traditional lenders a run for their money.

Looking to monetize their products, personal finance management applications are also offering consumers access to previously unavailable credit. Personal finance management application MoneyLion, which recently raised $42 million, offers customers access to lines of credit with 5.99% APR or less through its subscription-based MoneyLion Plus product.

And Affirm recently introduced its own consumer app that effectively allows customers to access a line of credit for almost any online purchase, whether the retailer is integrated with the fintech or not.

This isn’t even to mention the consumer lending supplied by retailers or tech companies, like Amazon or PayPal, themselves.

As Tanaya Macheel of Tearsheet pointed out, this increased competition could push banks and other issuers to work harder to keep their own credit card products top of mind. Even within a mobile wallet itself, what incentivizes a consumer to manually select one bank’s card over another?

This is opening up opportunities for companies like Enage People, a Toronto-based company focused on driving customer engagement and loyalty for its clients. One such ploy includes a push for consumers to spend their credit card reward points at Marriott hotels like cash.

We’ve already seen banks start to build their own personal finance management tools for customers in-house to compete with the fintechs in the market.

As lending moves more toward individual payment transactions, be it with loyalty programs or new products, it should be interesting to see how banks respond to the surge of competition in lending

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Cadence is a fintech reporter and writer at Fintech Unltd, where she covers the changing landscape of financial technologies. Previously, Cadence interned at Psychology Today, Business Insider and the Wisconsin State Journal. Cadence is interested in how science and technology intersect with power and culture and is curious about the world we are creating for tomorrow, consciously or not. She graduated from the University of Wisconsin–Madison in 2017 with degrees in Journalism and Chinese. Send tips and story ideas to Cadence at [email protected] You can also follow her on Twitter @cadencebambenek.