Banks and corporates by and large showed cautious optimism regarding consumer spending during the first-quarter earnings season.
Now, the operative question surrounds the use of credit for the balance of Q2 and the rest of 2024. Will consumers want to borrow to maintain their spending? Will lenders accommodate them if they do? As Versatile Credit CEO Ed O’Donnell told Karen Webster, it’s time to stay the course.
“All signs point to a steady state,” O’Donnell said. “I don’t see dramatic changes.”
Interest rates are still elevated, and rate cuts may not be coming anytime soon. Although delinquencies are inching up, credit trends are normalizing, and consumers still have some dry powder at hand in terms of room left on their credit lines and overall borrowing power.
“Nothing’s gotten overly heated,” O’Donnell said.
For Versatile Credit, which partners with more than three dozen lenders to deliver financing across large-ticket purchases from furniture to home improvement, “we’re still seeing growth in almost every vertical across the platform,” he said.
More homeowners are staying put, with relatively low mortgage rates in place on their existing properties. They are shifting toward home renovation projects rather than looking toward pulling up stakes and moving into a new house.
None of that is to say that there have been no changes, as retailers reach online shoppers. O’Donnell noted that credit is being offered in “slightly different” ways by many of his platform’s lenders, who are fine-tuning their lending efforts. They’re shortening the promotional terms for zero-interest rates, perhaps, but by and large, they’re still competing with one another for their share of consumers’ wallets.
The competition and disciplined underwriting come as Versatile Credit’s data-rich platform offers granular insight into consumer, merchant and lender behaviors. This interconnection fosters a more efficient consumer financing ecosystem, helping merchants sidestep having to integrate on a one-to-one basis with each lender, waiting for approval, and in the meantime, possibly losing sales.
Versatile Credit, O’Donnell said, is on a path toward simplifying the onboarding process, with a unified application for merchants that lets retailers apply once, supplying all relevant information to lenders that allows the latter firms to decide on financing products and pricing.
For the lenders, there’s the advantage of offloading compliance and regulatory considerations to the platform, including disclosing fees with transparency, he said.
“Leveraging technology to bring a more compliant and repeatable process to sales is important,” he said, adding that “every screen that we push out and every part of a disclosure statement is approved by the lenders, their operators and legal counsel … so it’s the most current and compliant information that can be out there in the market.”
Beyond its roots as an aggregator of credit, Versatile Credit is evolving into an aggregator of information and performance, O’Donnell said. That information includes merchant-level data that can help lenders extend more financing options to the strongest retailers out there. Versatile Credit’s lending partners have asked the company to provide scoring models that crystallize merchant behavior, financial issues and even consumer complaints or disfavor across social media channels.
“If there’s a strong merchant, it’s likely that a lender will be willing to take on more risk, but if the merchant performance seems a bit troubled, there will be a reduction of exposure,” he said.
Merchants, in a reflection of the times, are showing a desire to offer more installment loans — over longer time frames — to keep the payments lower for consumers, O’Donnell said.
“The payment is king if you’re getting new windows or a roof or getting a significant medical procedure done,” he said.
Looking ahead, there may be some incremental caution on the part of consumers as they mull financing everything from couches to dental implants. Lending products, O’Donnell predicted, will “evolve to support more convenient, lower payments if it’s possible … everyone’s got a vested interest in making sure people understand what they’re getting into and are comfortable that they can afford the payment.”
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