Risk & Economy » Driving business growth through disruptive business technology

Due to services such as payday loans, consumer finance is typically regarded as a negative option of payment. Now, fears are growing within the financial industry that the boom in household debt could soon turn into a bust, causing banks to clamp down on credit cards and another unsecured lending.

However, according to the Bank of England, the demand for credit from consumers has never been higher. Credit levels declined after the 2008 financial crash but have since recovered and are now at their highest level since 2004. Figures from PwC show that British consumers have more credit confidence now than at any point since their survey began in 2009. Importantly, the proportion of consumers worried about their ability to make repayments and secure credit has also dropped continuously in the last seven years, which is backed up by a significant drop in bad debt.

An opportunity to boost revenue

It’s clear that consumers are more willing and more able to make purchases on credit than ever before, and over 50% of retailers now offer some form of finance to accommodate this. At Deko, we recently surveyed consumers who had bought using finance and found that if finance wasn’t available, 59% would have bought elsewhere, 72% would have postponed their purchase and 65% only made their purchase because finance was available. It’s apparent that the offer of finance is generating sales that otherwise would have been lost.

There is a variety of different finance options businesses can offer their customers, such as instalment financing, which allows customers to spread the cost with fixed monthly payments, store cards to fund and drive repeat purchases from a single merchant and co-branded credit cards, which are also used to drive purchase frequency but can be used anywhere.

Reputational risk concerns

With consumer income being routinely squeezed and take home pay in decline, consumer credit is naturally increasing year on year. There is concern from some retailers and businesses that offering finance as a payment option could damage their reputation and cause backlash if credit growth gets out of control and another global financial crisis was to occur.

However, many in the industry don’t feel this will have a negative impact on the consumer finance market. There has been significant investment made in technology to help consumers manage credit and combat the risk of a crisis. This is critical, as one of the criticisms in the past was that credit was too easy to get and that lenders allowed consumers to get into debt too easily.

This is evidenced by the fact that bad debt is at its lowest level since 1966, businesses are beginning to feel assured that offering finance is a credible way of generating profit while allowing customers to access the things they want or need.

Finance platforms also work very closely with lenders to ensure affordability is catered for and so that the platform can be continually updated to remain compliant.

Technological advance disrupting the finance market

With the finance model traditionally being manual, paper-based and time consuming, even until around 10 years ago, it’s something many businesses have steered clear of.

However, present day sees the historical model modernised into a rapid automated finance platform which allows immediate finance decisions, with less human intervention and error, extending the opportunity to finance even wider markets.

Over the past decade at Deko, we’ve developed extensions to support multi-tier and multi-lender solutions which maximises the overall chance of success for a consumer’s credit application, whilst de-risking reliance on a single lender and ensuring lenders focus on the credit segments that work for them.

There is undoubtedly a growing trend for consumers to use credit to finance their lifestyle, whether it’s to pay for fees when buying a house, to buy an engagement ring, or to even further their education with a training course. Nonetheless, there is still some hesitance among businesses when it comes to offering customers finance. They don’t want to be seen to be fuelling a potential credit crunch.

However, it’s apparent that everything is pointing to finance being a viable payment option, not just in the interest of consumers and businesses, but for the economy too.