Tuesday , July 5, 2022

As Consumers Turn to Digital Options, POS Lending Finds a Receptive Market, TransUnion Says

Consumers are significantly increasing their use of digital channels when engaging with lenders, says research from TransUnion LLC released Thursday. That trend includes point-of-sale lending, which is rising fast during the Covid-19 pandemic, according to the study.

Since the pandemic hit the United States in March, 40% of consumers have been using digital channels more frequently. The increase is taking place at a time when 60% of consumers say the majority of their financial transactions are conducted via mobile applications, TransUnion says.

When it comes to the frequency of usage, 33% of consumers, or one in every three, are engaging with their preferred financial institution through digital channels several times a week; about 66%, or two in three, are utilizing digital platforms at least once a week, TransUnion says. Much of this information was discussed during TransUnion’s “Future of Lending” roundtable at its Financial Services Summit last month.

“Since Covid-19 and state-mandated lockdowns, the use of digital channels by consumers has accelerated faster than it would have otherwise,” says Liz Pagel, senior vice president of consumer lending for TransUnion. 

Pagel: Installment credit at checkout “has exploded during Covid-19.”

That’s made a digital presence a requirement for lenders and financial institutions. As a result, they have rolled out digital capabilities faster than they had planned to, Pagel adds.

Prior to the pandemic, Pagel says many lenders and financial institutions mailed offers to customers and prospects that were intended to drive the recipients into a branch to apply for a loan or open an account, for example. “Now these offers are being sent digitally and customers are responding through digital channels,” Pagel says.

One digital payment option that is rapidly growing is what Pagel calls POS lending or installment loans. E-commerce merchants are a prime prospect to offer these types of digital loans because they can be promoted to consumers before they get to checkout. Being offered the opportunity to apply for an installment loan prior to checkout can increase the amount a consumer spends on her purchase. 

“Consumers are likely to spend more when offered this type of loan because they can finance the amount and see what their monthly payment will be before clicking the buy button, says Pagel. “This financing option has exploded during Covid-19.”

Fintechs are currently leading the charge in offering installment loans through digital channels, Pagel adds.

One reason for the popularity of installment loans offered through digital channels is that lenders have streamlined the application process, thereby reducing the friction that can turn off consumers from applying. This approach has made it possible to underwrite a loan in real time, instead of days. 

Authenticating the applicant, however, still needs to be a priority, says Pagel, to prevent fraud losses and to assure applicants that measures are being taken to prevent an account from being fraudulently opened in their name, says Pagel.

Other offers grabbing consumers’ attention are credit offers personalized to their financial needs. Thirty-three percent of consumers found customized credit offers to be very important and another 33% say they are somewhat important, the TransUnion report says. “Consumers are now accustomed to receiving highly customized retail offers through online channels,” says Pagel. “As a result, they now have higher expectations for their interactions with lenders. Lenders who integrate into the purchase moment, or who provide customized, relevant credit offers, are seeing outsized growth.”

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