Consumers Spend More With Merchants That Offer Instant Financing

By Elizabeth Bramlage

In e-commerce, there's a new payment method in town — instant financing. The practice enables merchants to offer consumers the ability to spread payments over time with low or no APR financing offers, and represents an attractive alternative to credit and debit cards when paying for online purchases. Instant financing is particularly appealing to millennials, many of whom don't even have credit cards.

Klarna conducted two surveys — one earlier this year that polled online merchants and one last year that polled consumers — and both show instant financing is a win-win for those selling and buying products online. However, despite the enthusiasm expressed by both retailers and consumers, we were surprised to find that only 26 percent of e-commerce executives indicated they currently offer this alternative payment method.

Perhaps the biggest reason for merchants to integrate instant financing into their checkouts is to combat cart abandonment. According to the Baymard Institute, close to 70 percent of online customers who were engaged in the process of buying products or services left items in their shopping carts unpurchased. This cost online retailers $6.4 trillion in unrealized revenue, according to BI Intelligence.

Our latest survey, which was designed to gain understanding of merchant behavior and attitudes toward instant financing and the potential impact on their businesses, found that nearly half of online retailers (46 percent) confirmed instant financing reduced cart abandonment, while two-thirds (64 percent) believed that providing financing options at checkout increased overall sales.

This positive sentiment dovetailed with the results of our previous survey, designed to determine consumer views and understanding of financing options. We found that instant financing empowers consumers by providing them with additional freedom, flexibility and buying power.

Findings from this survey revealed:

Three-quarters of consumers (75 percent) preferred online merchants offering instant financing.
Thirty-nine percent said they would spend more money if given instant credit options when purchasing goods and services online.
Twenty-eight percent would be very likely or completely likely to change merchants to use instant financing.

Today, there are several instant financing solutions available to online merchants, but our study shows that only those point-of-sale (POS) financing options that offer the convenience of choice and smooth frictionless service will meet all the needs of online retailers, brands and consumers. The attributes that merchants and consumers both want from POS financing are simplicity of online application; speed of approval; keeping consumers on their sites during the approval process; and a standard, nonvariable APR that can be advertised and also make shoppers feel they're being treated fairly.

Other attributes online retailers should consider when selecting a provider to integrate this alternative payment method into their checkouts is whether they will have the option to use POS financing as a promotional vehicle and offer turnkey 0 percent or reduced-interest plans. It's also important to be able to extend the service internationally via a single integration and provide consumers with an open line of credit so there's no need to reapply every time the consumer decides to return to shop.

We believe instant financing will grow exponentially in the coming year as more online retailers recognize POS credit is an important tool in reducing friction at checkout and increasing consumer buying power, which best positions them to compete effectively.

Additional results from the survey, which was fielded between January 2 and January 23, 2018 by Researchscape International on Klarna’s behalf, are available via the Total Retail Resource Library.

Elizabeth Bramlage is the head of U.S. marketing at Klarna, an e-commerce payment solutions provider for consumers and merchants.