Consumers and merchants are being let down by the current state of play in the traditional retail finance space — an “untouched” aspect of the checkout finance market, says Todd Latham, CEO at U.K. retail finance platform operator Divido.
In an interview with PYMNTS, Latham explained that unlike other forms of checkout finance like buy now, pay later (BNPL), the traditional retail finance market is a regulated lending space for higher-value purchases — about $2,500 on average — complete with full know-your-customer (KYC) and affordability checks.
But although the solution has been around longer than BNPL, for example, the space has not seen any real innovation in recent years and remains largely overlooked by FinTechs, leaving “old-school companies that are low tech, vertically integrated, and more interested in lending than they are about the consumer experience” to dominate the space, Latham told PYMNTS.
This has created a large market opportunity for FinTech innovation, one that Divido is tapping into with its white-label platform that enables eCommerce retailers to offer consumers an installment option at the point of sale (PoS).
Pointing to a research study recently released by the firm, he said the checkout finance solution in general has been rapidly growing in popularity among consumers, particularly among millennials, in the last couple of years and now rivals cash and credit cards.
In fact, young consumers between the ages of 18 and 35 were shown to opt for checkout finance rather than credit cards, with a slightly higher number recorded for those who said they used checkout finance (almost 63%) compared to the 60% who use credit cards.
“It just reaffirms what we’re seeing, which is a generational shift not necessarily entirely away from credit cards, but people wanting to have lending embedded into the purchase journey for those higher-value purchases,” he explained.
He added that the fact that the embedded finance shift is being embraced by younger people more quickly than among older people is a strong indication that “these buying habits are here to stay and will become a really dominant force for retail payments in the future.”
According to Latham, the control checkout finance gives consumers over how much they spend, unlike with credit cards which can end in accruing balances at high interest rates, also adds to its appeal.
“With [checkout finance] products, it’s often zero interest and you’re making payments in a very structured way, which gives you a lot of control and the feeling of empowerment, rather than a feeling of being at the mercy of the financial system,” he said.
The firm’s research findings show that a large proportion of people view checkout finance as an important tool to manage their finances, especially as Brits and the consumers in the broader European market navigate the ongoing cost-of-living crisis.
Moving forward, he said Divido will be strengthening ties with some of the largest banks in Europe, like HSBC and Nordea, as it rolls out a new platform to enable merchants operating across Europe, which previously had to integrate with multiple lenders on their platform, to save time and money with a more seamless process.
“Today if you were to have checkout finance in your platform, you tend to have to integrate into five or six different banks. That is costly and it’s expensive and they’re all different and it creates complexity in your business,” Latham said, adding that their new product allows Divido “to effectively stitch all of this together to simplify and provide greater value to merchants.”
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