In order to understand how multi-lenders work in POS financing, we have to first understand what POS financing is.
Point of Sale (POS) finance refers to a type of loan given, to provide financial assistance only after selling a product or at the point of sale. People who have a fixed salary income or are self-employed professionals usually have access to credit cards and can apply for a loan based on their income. However, under POS financing almost everybody can get a credit/loan to purchase a product.
For example, a woman goes into a furniture shop to buy a dining table. There are a number of them which are affordable and within her budget. But the one that catches her eye is made of fine wood and very expensive. The shopkeeper notices her desire to buy the table and tells her about their credit system. Under this credit system, she can purchase the product at once and pay for it in small installments every month, over a period of time.
Who are Multi-Lenders in POS financing?
A POS lender is someone who lends credit to a consumer. If a person needs credit/loan then all the details regarding the purchase and the consumer are passed on to the lender. The lender reviews the profile and decides whether to give finance to the consumer or not. In case an individual needs to loan a considerably large amount then there is a network of lenders who come together, review the details, and make a decision, at the time of purchase.
Note, POS financing is not a form of personal loan as the lender knows the exact cause of lending the money. This form of credit/loan is introduced to selective customers, who show a strong desire for buying a particular product but aren’t able to afford it. POS loans are given out for individual purchases and unlike credit cards they charge a very small rate of interest. The customer can choose the number of installments and the duration over which s/he wants to pay.
How Do Multi-Lenders Work in POS Financing?
Multi-lenders in POS financing are very forthcoming. For instance, ChargeAfter is the first global network that came into function. Merchants or retailers and a number of third-party lenders come together under one roof in order to benefit the consumer.
POS loans are not new. An example of such a loan is car loans. However, POS lending is very recent and new in the market. One reason for which this has been possible is because of the technological advancements, quick money transactions, and the option of paying the installments through net banking on cell phones.
There are a number of companies namely, Affirm, Afterpay, Klarna, who make POS financing work.
The lenders convince customers to take out point of sale finance by offering promotional schemes or charging a low rate of interest. Sometimes they also make offers where the customer has to pay zero rates of interest. However, this is not true.
The lenders need to make money by giving out these loans. The way they benefit is by charging the merchants or retailers a fixed sum of money on every loan they generate, instead of charging the consumers. But the retailers will not simply pay this amount with their own personal money. They in turn increase the market price of the product to pay off the lenders. This is why retailers are prohibited from selling at any other price.
Pros and cons of POS financing.
As mentioned earlier under POS financing almost anyone can get credit/loan. Not everyone can afford to pay through the conventional credit system. Hence, this method is useful for pooling resources to attract potential consumers.
This is also a very good method for merchants to level up their sales.
The consumers have a clear idea of how much they will have to pay including interests and taxes, from the beginning of the purchase. It’s convenient for the retailers because once the loan is generated they are not responsible for any kind of default, they do not run the risk of any credit loss. The transactions take place solely between the consumers and lenders.
The process of POS financing is easy, hassle-free, and takes place in an instant. This process comes along with a POS system. The POS system helps is auto-generated and makes transactions easier. The transactions can take place both online and offline.
In certain scenarios, POS loans can be expensive, say, 30% annually. It is important to have proper knowledge of the rates and transactions.
Once you enter into taking up this loan there is no way out. Suppose you purchase some sort of electronic gadget which gets stolen before you have fully paid for the product. Regardless, you have to pay the installments unless the loan is covered.
POS financing has been approximately estimated to be a trillion-dollar industry. The reason behind it becoming so prominent at present is because retail shops are constantly in competition with e-commerce. Merchants and retail shop owners need to keep up with the fast-growing buying and selling business online. This method of financing gives a boost to the sales in the market.
POS financing was considered a retail revolution before the pandemic took place. All the parties involved in POS financing are benefited one way or another, making it more appealing in business.
The consumers can buy medium to large ticket items of their wish and pay for them in chunks over a span of time. The retailers can easily find buyers and get their business going; they do not run the risk of losing finance. The lenders make a profit from the interest rates or schemes that they have with retailers. The transactions are also carried out smoothly because of innovation in technology.
Although the demand for POS finance is evident and growing, economic recession due to the pandemic has left its toll. Lenders have to always look out for frauds. In the long run, the outcomes and benefits of this method of financing remain uncertain.
