Every year, the number of purchases that are paid for ‘in installments’ increases. Data from BIK, a Polish credit information bureau, shows that this increased by around 14% in 2018 compared to the previous year. Being able to pay for goods and services in installments empowers customers to satisfy their urges to buy ‘here and now’, without necessarily sending shockwaves through their domestic budget or other aspects of their financial planning. ITMAGINATION foresees the ‘Pay Later’ option as an important trend for retailers and banks. But how can they integrate ‘buy now, pay later’ into the mobile shopping experience in a way that is intuitive and attractive to shoppers, while also satisfying concerns about privacy and protection of personal data? Marzena Sokołowska, Banking Services Product Manager at ITMAGINATION, explains how banks and retailers can become even more relevant and useful to their customers, and retain their trust on data privacy issues.
As consumers become more and more familiar with online and mobile banking, the queues at bank branches – and even the number of branches – have fallen. Increasingly, customers are able to handle their day-to-day finances from the comfort of their homes or while on the move, with devices like smartphones, tablets and personal computers. We can pay our bills, transfer money to friends and family members, pay for goods and services in stores, and now we can even set up purchase plans to pay for items in installments.
In April, 2019 ITMAGINATION commissioned a survey (conducted by IBRIS) of 1,000 Poles, which found that almost one-third of respondents earning more than PLN 5,000 (EUR 1,150) net each month would gladly consider taking short-term loans to fund purchases if the functionality were available to them through their smartphones. This tells us that, for banks and retailers, the ability to empower customers with increased spending power with just a few taps is a huge opportunity for retailers and banks alike.
It’s not just about ‘online’ versus physical stores. Payment methods matter
Today, when a shopper is looking for a specific product, he or she will almost always find it. If it’s not in a local physical store, then it’s probably available online. And if it’s not sold by an online retailer in the same country as the shopper, then it’s normally possible to purchase the product and have it shipped internationally by a retailer in a different country (think about how retailers like Amazon and ebay use shopper location to automatically show shipping costs and details). Customers today have a wealth of options and retailers benefit from a range of platforms and models that enable them to reach beyond their local markets and compete for custom at an international level. This encourages customers to be more demanding, and this will increasingly apply to payment methods – customers will want to complete purchases as soon as they’ve found the product they want, regardless of whether they have the full amount available to them or not. Retailers will be expected to accommodate this request by facilitating deferred payments or payments in installments. This will be true for online commerce and in-store shopping.
According to research conducted by L’Observatoire Cetelem BNP Paribas Personal Finance (link to Polish article), 60 percent of people in the 18-35 age bracket, much like older shoppers, feel that it’s important to be able to go and physically see and touch a product before making a purchase. This need to see and touch a product ‘in the flesh’ explains why physical stores still remain popular and it explains why most retailers and brands still have some form of physical presence (even those that were ‘born’ online). Where retailers often suffer is when canny customers use the physical experience to ‘get to know’ the product, but then – perhaps because of queues, perhaps because of higher prices or delivery convenience – revert back to their online preferences to complete the purchase. Let’s be honest, how many of us have browsed for products in store but have been checking our smartphones to find the same product online but cheaper? As customers, this mix of the physical and online worlds empowers us to demand more and it typically doesn’t take more than a few minutes’ worth of browsing and a few taps to get a better deal for ourselves.
All of these factors make it difficult for physical stores to compete with their online counterparts. ‘Digital first’ retailers, such as Amazon and AliExpress, have been able to integrate convenient payment methods and finance options into their online shopping experiences without adding significant time or additional steps to the buying process. While many physical retailers offer flexible payment plans, such as ‘pay in installments’, this is often limited to larger purchases, such as home appliances, consumer electronics, tech products (computers, tablets, phones) or furniture. The same options are rarely available for items like clothes, for example. Furthermore, buying ‘in installments’ or ‘on credit’ often requires additional steps (sometimes a separate point of payment) and/or provision of personal details (e.g. to allow the retailer to check if you are credit worthy) to a member of store staff. Older shoppers are likely to be familiar with the idea of waiting in line at cash register, then being shuffled along to the credit desk, and then to the person who organizes the delivery (if it’s a large product). But for millennial shoppers accustomed to convenient, seamless online purchases, the time required to complete a high-value transaction in a physical store can be off-putting. The more we become accustomed to the convenient and frictionless nature of the online world, the worse it feels when we’re forced to endure the friction of the in-store experience.
Technology can facilitate confidence and discretion for in-store purchases
Even though most physical retailers have finetuned their processes when it comes to paying in installments, in most cases, a purchase made in installments will typically still require you to ‘take a seat’ while you fill out some forms with a member of store staff and provide details that will allow the retailer to check your credit worthiness and – let’s face it – learn a bit about what you earn, what you owe and your financial obligations. As consumers in a digital world, the idea of adding steps to what should be a simple process of buying a product, and potentially divulging sensitive details to a stranger in the hope that your request to pay in a way that is more convenient to you will be approved is not an appealing prospect. It simply lacks the convenience and sense of privacy and comfort that online shopping provides. This sentiment was shared by a significant proportion of participants in our survey – one-fifth of Polish consumers aged between 30 and 39 would make use of an option to obtain a loan using their mobile phone if, by doing this, they could avoid discussing the topic face-to-face with a member of staff.
As we become increasingly aware of how companies use our data, we’re becoming more careful about what we disclose and with whom. For most people, discussing earnings, family income and personal financial situations with strangers isn’t comfortable or desirable, and it can represent an obstacle to making a purchase. Thankfully, the technology exists for us to make this type of awkward situation a thing of the past. However, to empower customers to make their purchases in this way with confidence, retailers and banks must still win the trust of customers by showing them that their personal data is in safe hands – 35% of survey respondents told ITMAGINATION that they would not take out a loan unless they had full confidence that their personal data would be secure.
ITMAGINATION helped BNP Paribas Bank Polska achieve compliance with the EU’s General Data Protection Regulation (GDPR) and has developed a Personal Data Protection System that not only helps institutions keep data secure, but also enables it to be anonymized. In this way, banks can use behavioral analytics and artificial intelligence (AI) solutions to deliver personalized experiences that increase the likelihood of end-user satisfaction and help make products and services more relevant to customers, without a reliance on access to personal details.
So how can we make ‘buy now, pay later’ available to more people?
Let’s say you’re at a store and you see an item that you’d like to buy. You take out your smartphone, open up an app and you use it to take a picture of the product’s price tag. Once details of the item and its price have been captured, the app displays a variety of payment options, such as the option to divide the total price of the product into installments and to spread these installments out over a period of time that is convenient to you. If it’s a little difficult to imagine this, check out a short demo from when ITMAGINATION demonstrated the Scan and Try solution at Finovate Europe 2019 (check out the video from 4:25 onwards).
This type of service is perfect for millennial shoppers who look to their phones not only to help them communicate with friends and connect with their social networks, but also to keep track of and manage their personal finances on a daily basis. Whereas previous generations have been accustomed to the face-to-face contact that accompanies such transactions, for millennials, completing purchases or handling financial matters without the need to interact with another person – whether that’s store staff or a representative from a bank – is a highly valued convenience and, for many, it’s the preferred option.
‘Pay later’ is an opportunity to win market share now
ITMAGINATION believes that both banks and retailers have incredible opportunities to increase their reach and make themselves more useful and relevant to their customers. As explored in an earlier ITMAGINATION blog post about micro-personalization in banking, banks face increasing competition from the big technology companies (GAFAA: Google, Amazon, Facebook, Apple, Alibaba). These companies already have a place in users’ lives – either as preferred retailers, social connectors, manufacturers of preferred hardware and more – and are looking to increase their territory in the hearts and minds of customers by expanding into other areas. Under threat from these tech giants, banks and retailers need to explore how they can not only succeed in their current roles (i.e. sell more products or services) but also become more relevant and useful to their customers. ‘Buy now, pay later’ represents a high-potential way for banks and retailers to do this.
But paying in installments isn’t the only way for banks and retailers to become more relevant and useful to their customers. Today, most retailers offer some form of money-back guarantee on purchases. This provides consumers with peace of mind that if they don’t like the purchase, they can always get their money back. This removes some – but not all – of the barriers to purchase. Now imagine that a customer can order products from a digital store or collect them from a physical store, without paying for them. The bill arrives or the money is debited from the customer’s account 14 days after collection or delivery date. The customer pays only for those items that he or she is satisfied with and would like to keep and the rest are returned. Or, imagine being able to order or collect multiple items from a store within a given period, say one month, and then being able to pay a single bill at the end of the month (perhaps to coincide with pay day). It’s fewer transactions to process (including returns), more money in the customer’s bank account for longer, and a deeper relationship between customer and retailer (or bank).
The ‘pay later’ approach to shopping is becoming increasingly popular in traditional physical retailers around the world. Global brands like H&M, and some of the UK’s leading retailers, such as Topshop and Dorothy Perkins, have already rolled out these types of option. Other brands and markets are likely to follow suit as the already-competitive retail climate becomes even more pressurized. Are you ready to offer your customers financial flexibility now so that you can capture a greater share of their hearts and minds? Or are these customers going to slip away and force your business to pay the price later?
Talk to ITMAGINATION about how you can provide your customers with greater financial freedom and increase their confidence and trust in your brand.
Learn it. Know it. Done.
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