Preparing For The Holiday Season: Buy Now, Pay Later Versus POS Lending (Dmitry Dolgorukov)

It might appear that the countdown to the holiday season has already begun, with gifts and decorations springing up in stores across the country. However, behind the shelves, inflation continues its hold on the markets at around 8%. Many retailers are expecting
a more toned-down holiday period with consumer concerns about rising costs, inflation rates and interest rates coming to the forefront of discussions.

Despite the gloomy financial outlook, predictions indicate retailers could make an increase in sales of 7.5% this year, lower than the 2021 figure of 13.5% and 9.8% in 2020. When adjusted to take into account inflation, the number this year may be closer
to the preceding five years, which averaged approximately 3.5%.

In preparation for the challenges of the upcoming holiday season, some retailers are now seeking to answer a market need and provide joy with a healthy helping of affordability. The possible solution? Accessible payment options. Buy now, pay later (BNPL)
and point of sale (POS) lending remain popular among retailers. However, there is some debate about which is superior considering the current market.

Buy Now, Pay Later

Buy now, pay later does what it says on the tin exactly. It offers the buyer the opportunity to take the purchase home today and pay for it later in an installment plan. Usually, BNPL payments last between four and 12 months, making it a viable solution
for those seeking to spread the cost of the celebration over several months to make it more affordable. The way BNPL is implemented varies from retailer to retailer and even product to product, which can create challenges when shopping for gifts or other items.

BNPL lending is often a logical solution for a millennial and Gen Z consumer audience who value speed, usability and technology solutions over older methods. BNPL often meets these criteria due to the rise of online BNPL services and integrated software
solutions, which make it possible for organizations to add the technology to their native apps.

Pros

• On-the-spot approval so the consumer doesn’t have to waste time.

• Zero percent interest is possible, and at the same time, retailers may choose to add interest to the payments.

• Allows clients to spread the cost of items, especially high-ticket products, over some time.

• No credit check is required, although some retailers may still complete a soft check with no impact on your credit score.

Cons

• Failure to make payments could result in lowered credit scores.

• Consumers may be unable to keep up with payments.

• Potentially could be over-accessible if not managed properly.

Point Of Sale

Point of sale (POS) lending is a lending solution offered by financial institutions, credit unions and other lending providers that allows buyers to spread the cost of their payments. Many buyers believe it is a solution for big-ticket items they would not
be able to afford in one payment. Additionally, POS lending often comes with interest rates, which can be high, meaning consumers end up paying more than they borrowed.

POS is often the preferred method of installment paying for an older audience, perhaps due to its familiar terms and the process required to complete a credit check. Although a good solution for high-ticket items, when used for minor purchases, the interest
rates involved can negate the benefits of the sale. In this case, a BNPL option would be more suitable. However, unlike BNPL, POS lending allows providers to spread the payments further, lowering the amount of the monthly payments for the consumer while making
it more profitable for the lender in the long term.

Pros

• More affordable payments for consumers can boost sales for luxury items.

• Requires a credit check, which can mean that the client is more likely to repay.

• Makes lower interest rates possible for suitable clients.

Cons

• Takes a little longer than BNPL to approve.

• Payment plans can be spread out over a longer period meaning a client could default at this time.

• Credit checks are a must, meaning lenders need to take on this additional responsibility.

Which is a better choice for this holiday season?

Both POS and BNPL are viable solutions for lending providers this holiday season. Especially so when many are concerned about the costs in the run-up. By allowing consumers to spread out their payments, lending providers help relieve some financial concerns
over spending and potentially increase confidence in their purchase decisions—which can ultimately impact economic growth.

Conversely, it’s also advisable for the same leaders to look not just at economic growth but at responsible lending and manageable payments so that a short-term solution designed to boost economic growth and joy in the holiday season doesn’t turn into a
year-round nightmare. No matter which payment variant lenders choose, affordability, suitability and responsibility need to be part of the discussion, just as much as the type of technology used.

Lenders also need to be acutely aware of their target audiences and their needs and be able to adjust their payment solutions accordingly. When it comes to POS versus BNPL, there is no singular best solution, only the solution that is right for your business
right now.