Consumer Sentiment on Financing Big-Ticket Purchases This Holiday Season
The holiday season is upon us, and consumers who have their sights set on buying premium items, including electronics, appliances, home and luxury goods, will be drawn to more modern payment options as they head to the checkout counter vs. being asked to open up a credit card with the purchase.
Our inaugural Citizens Bank Point of Sale Survey, which offers an understanding of consumer mind-set and preferences for payment options of large purchases, revealed a sharp preference shift away from co-branded cards. The survey found that two-thirds (66 percent) of consumers feel that they have enough credit cards and prefer not to open more just to make a big purchase. This points to consumers wanting an alternative to opening up a new credit card to make a large-ticket purchase at a retailer, whether they're in-store or shopping online.
Simple and Seamless: 2 Ingredients for Success
The recent research sponsored by Citizens Bank also found that having clear and easy access to financing options available at the point of purchase dramatically increases the likelihood that a consumer will make a purchase. Over three-quarters (76 percent) of U.S. consumers are more likely to make a retail purchase if a simple and seamless payment plan is offered. It's critical that the application and approval process is completely digital, instant, and integrated into a retailer's shopping experience to maximize customer satisfaction and conversion.
Consumers are now accustomed to thinking about purchases for services and goods in monthly payments, so a simple, fixed monthly installment plan can be more effective than a credit card, where the customer may not have a clear understanding of the payments required to pay off the purchase. In fact, the majority of survey respondents said a clear understanding of how a purchase will be paid off is a major decision driver for whether to buy an expensive item. More than six in ten (62 percent) consumers would prefer fixed monthly plans with clear payment terms. We've also seen success in using this model to bundle products and services as a subscription service to encourage additional sales and more frequent upgrades.
Transparency and Trust is Key
Trust in a lending institution is also a vital consideration for consumers as it pertains to financing purchases. Our survey ranked it the second-most important factor (behind clear understanding of how the amount will be paid off) for consumers making large purchases. Furthermore, the survey also found that traditional lenders with name recognition are more trustworthy in the eyes of consumers. As concerns increase about data security and how personal information is being used, it's not surprising to see more consumers have faith in traditional lenders, who have a well-established track record of complying with the latest industry standards, regulations and consumer advocacy groups.
Implications for Retailers
Our report shows that the current state of retail financing, dominated by co-branded credit cards, leaves room for improvement in the customer experience. Consider that fewer than half (43 percent) of consumers said they're likely to recommend this financing experience for those “moment of truth,” big-ticket purchases. This survey also provides insights for OEMs/product manufacturers that sell through other retailers. Given advancements in digital and payment technologies, there are now opportunities for them to offer their products using modern payment plans across a distributed set of retailers.
Retailers and OEMs can test these new, modern payment models with relatively little time and cost. Even those retailers with existing co-branded/store cards can complement their card offering with a more modern plan for larger-ticket items to accelerate sales of higher-margin products, bundle services and encourage more frequent product upgrades. This action will differentiate them from competitors that are still clinging on to "would you like an application for a credit card to make that purchase?”
Andrew Rostami is an executive vice president, head of unsecured lending and cards at Citizens Bank. He has expertise in financial services, consumer and unsecured lending, credit cards and payments, point-of-sale programs, technology, digital, data and analytics, retail and operations.