The Triple Threat: Pay-Over-Time Financing as a Marketing Tool

Americans are growing increasingly wary of credit cards. The percentage of Americans under 35 holding credit card debt has reached its lowest level since 1989 — when the Fed first began collecting this data. And 70 percent of millennials believe how we pay for things will be totally different in as little as five years.

These shifting consumer attitudes suggest a need for retailers to adapt the way they facilitate payments. Merchants today have access to innovative tools with the power to convert customers who are leery of — or unable to access — traditional credit options. Modern financing options can help merchants increase market size, facilitate larger transactions and boost repeat purchases.

Here are three quick tips for putting these new tools to work:

1. Reach a larger audience. If you want to sell to millennials — 84 million potential customers who now drive trends and expectations of consumers overall — then it’s time to consider offering payments on their terms, for their needs.

Consider the explosive popularity of pre-paid debit cards or “open loop” gift cards. Data shows that the majority of users employ these cards in order to transact with merchants that don’t accept cash (i.e., e-commerce retailers). It’s up to merchants to enable this credit-eschewing group to purchase.

Additionally, a recent study found that 72 percent of consumers who have carried a credit card balance worry about how much their purchases end up costing in total, including interest.

As a result, consumers have begun embracing new credit alternatives built on transparency, in direct contrast to traditional credit card options. By offering and promoting an honest, simple way for customers to finance their purchases, you’ll activate a new share of your market who previously have been hesitant or unable to do business with you.

2. Reframe pricing to increase average order value (AOV). One way to increase AOV is to reframe how you present pricing. Instead of focusing on a single purchase price, offer customers the ability to pay in installments, making larger purchases more affordable. Kmart pioneered this concept with layaway over 40 years ago. Home Shopping Network (HSN) later put its spin on the idea of installment-based payments with its FlexPay.

When you break down larger purchases, consumers take advantage of their increased purchasing power. By framing purchases using “as low as” and “per month” language, you can reshape the way your customers evaluate a transaction’s value, transforming a later purchase into a today purchase.

3. Create stickiness with a better payment experience. Offering new ways for customers to complete their transaction can remove friction from checkout and provide a better overall buying experience.

Starbucks popular mobile app is a great example. A quick tap of your NFC-enabled smartphone and you’re on your way, coffee in hand. By offering an alternative to the standard swipe-and-sign transaction, you make your customer’s day easier, and this encourages repeat purchases. In fact, recent data indicates that 25 percent of consumers who use transparent financing to purchase, as opposed to traditional credit, repeat buy.

Don’t forget to ensure your mobile checkout experience is as seamless as on desktop, or you’ll risk shoppers abandoning their carts: 46 percent of cart abandons happen at the payment stage.

By embracing alternative financing options, merchants can seize a tremendous opportunity to boost customer acquisition by reaching a larger, more financially empowered audience while differentiating themselves as forward-thinking and customer-centric.

Len Eschweiler is the senior vice president of retail for Affirm, a company that provides affordable ways to buy online that are more flexible and transparent than credit options.