Industry News Retail

Consumer Financing: A Tool to Win More Business

Having Options Serves Customers & Boosts the Bottom Line

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“Financing options won’t just help you close a sale,” says Dan Bourgeois- Capozzi, director of marketing, EasyPay Finance. “They will expand your customer base and will help you develop long-lasting relationships with customers.”

When it comes to financing, consumers don’t fit into a one-size-fits-all solution. An increasing number of financial companies are offering products to help serve consumers with less-than-perfect credit.

Tire dealers who have expanded their credit offerings beyond the traditional store-branded credit card have seen positive results.

Dealers are no longer turning away consumers who need a new set of tires, an unexpected brake job or suspension repair because they can’t afford it. There are lease options, installment payment plans and more.

Increasingly, experts recommend that retailers offer an array of financing options to capture the broadest amount of consumers. We asked those experts what tire dealers should be looking for in a finance partner, how to talk about credit with consumers and how these products and services can help close the sale.

MTD: Should dealers be offering a suite of options — rather than just picking one service provider and one option — to appeal to a broader base of consumers?

Trey McQueen, automotive account executive, American First Finance Inc. (AFF): Financial situations and credit profiles can vastly vary from consumer to consumer, so dealers will get the best result by partnering with a group of lenders that understands this and can collectively cover the entire credit spectrum. A one-size-fits-all credit option simply doesn’t exist. To be able to best serve customers across the credit spectrum, a suite of complementary lenders is ideal.

Not everyone can afford large transactions — such as replacing tires or a transmission — out of pocket. But all consumers need to get tires, wheels or automotive repair services from time to time.

There are plenty of primary lenders that focus on approving consumers with shining credit. But options are limited for credit-challenged consumers, which can leave your business turning away customers and leave consumers feeling defeated simply because they can’t afford the cost upfront.

It may be difficult for credit-challenged consumers to get approved. These consumers have either not used many traditional forms of credit to help build their credit or have encountered life events that prevent them from being able to make on-time payments, causing their credit score to suffer.

In the eyes of a primary or secondary lender, these consumers may be deemed “too risky” because of their credit profile. AFF believes that all consumers, even tertiary, should have access to the goods and services they need.

Dan Bourgeois-Capozzi, director of marketing, EasyPay Finance: We think it is important for shops to understand the programs that are available and how they fit their customers’ needs. Credit is like tires — you must have the right size for the car. You wouldn’t want to put a consumer who is eligible for a prime program into a tertiary offer. That is not a good fit and doesn’t build loyalty with your customers. Therefore, we designed our program to provide tailored terms based on an individual’s credit history

Orlando Zayas, CEO, Katapult Holdings Inc.: Innovative tire retailers currently offer a wide range of traditional and alternative financing options at checkout to increase transaction volume and reach new customers they haven’t been able to transact with in the past.

Retailers who offer a lease-to-own option through Katapult see higher repeat transaction rates and greater customer satisfaction rates. With multiple checkout solutions available, tire retailers not offering lease-to-own or no-credit-needed financing options (are) leaving money on the table.

Today, half of the adult consumers in the U.S. have a (credit) score below 700 and many have limited financing options available to them. At the same time, 47% of today’s consumers need financing to make a purchase of $400 or more. That doesn’t mean that non-prime consumers aren’t shopping. Like all of us, they need certain goods, including tires, to live their lives to the fullest.

When it comes to obtaining durable goods like tires, customers must often decide between purchasing lower-quality goods or not making the purchase at all. Offering lease-to-own options helps tire retailers provide a path to ownership to this previously ignored market segment (and it allows) customers to obtain the durable goods they desire by leasing and paying over time once they qualify through a transparent and fast application process that uses Katapult’s proprietary decisioning logic.

And this benefits retailers, as well. Forty-three percent of consumers say they are inspired to shop with certain merchants that offer lease-to-own payment solutions.

Brian McNamee, vice president of business development, Koalafi (previously West Creek Financial Inc.): We found that tire dealers who only cater to one segment of buyers can create hidden buyers. These are potential buyers who find your service and want to work with you, but can’t afford your product or service. That’s why we highly suggest having a solution that offers multiple financing products.

But the problem with offering a suite of financing options is that you risk confusing your sales associates or your customers with different terms, systems and talk tracks, which can over-complicate your checkout process. Plus, signage for three to four different companies can confuse your customers and compete with your store branding.

With Koalafi, you get all of the benefits of a wide range of payment options for a wide range of customers, without the added complexity for your customers or your team.

Mike Giordano, chief commercial officer, Progressive (Prog Leasing LLC): The concept of flexible payment options for consumers is increasing in importance as shopping habits and consumer behaviors continue to evolve. Customers now expect the ability to choose the most convenient checkout experience — be it in-store or online — and look for retailers that offer the opportunity to pay for goods with flexible and accessible terms, such as lease-to-own or buy-now, pay-later options.

Retailers who understand that shift and adjust their checkout experience to match will continue to see an advantage over those who provide fewer payment options for customers. For this reason, we offer “buy-now, pay-later” through Four Technologies and revolving credit through Vive Financial — in addition to our Progressive Leasing lease-to-own product — to assist in rounding out a retailer’s financial stack.

Curtis Campbell, director of enterprise and small-and-medium-sized business marketing, Snap Finance LLC: At the end of the day, it is critical to a business to provide a way to close every customer. Any customer who leaves before completing a purchase is costing that business revenue. By offering secondary financing, customers can get what they need, when they need it — enabling the business to capture revenue that could have potentially been lost. All this said, merchants should vet financing providers thoroughly, making sure that (offerings) would appeal to their target demographic.

It is equally important that their retail store representatives understand how to position financing. If they fail to understand it, there is no way they offer it to their customers and no way the customer signs up.

There is nothing that precludes a merchant from offering unlimited, different options. But it is critical that whatever they offer complements the shopping experience and enables the business to close versus confuse the customer.

Robert Nunziato, sales operations manager, Sunbit Inc.: Tire dealers often have to pick between credit cards with reasonable rates — but low approvals and slow applications — or predatory offerings that kill the customer with interest, but approve those who are declined for credit card type offerings. When you have two quarterbacks, you have no quarterbacks. Sunbit provides a solution that approves 90% of customers with fair and transparent rates, eliminating the need for multiple offerings.

Curtis Howse, executive vice president and CEO, home and auto, Synchrony Financial: Dealers should lead with a consumer financing product that offers consumer-friendly terms and best fits their customers. It’s helpful to provide a secondary payment option if the consumer does not meet the qualifications for the initial product. Providing options helps dealers drive more sales to completion by enabling more consumers to finance their purchases.

Synchrony provides digital capabilities for simplifying consumer financing at the point of sale. Synchrony Multisource Financing offers additional lending sources within the Synchrony Business Center, enabling more consumer financing possibilities.

We enable merchant partners to quickly enroll with a secondary lender to increase their customers’ credit application approval rate with Multisource Financing. Secondary financing options in our system can streamline the credit application and lending process by offering consumers the simplicity of completing one application for use with additional lenders to find the financing option that works best for them.

Vicki Turjan, president and chief operating officer, Versatile Credit Inc.: The growing trend is to offer consumers choices in how they want to pay for their purchases. The most efficient and cost-effective way to do that is to partner with lenders who  have the products and credit appetite to serve the consumers who are buying a particular retailer’s products. Versatile can help identify, introduce and integrate the right credit providers quickly and efficiently. As needs change, we can also add or change providers at the dealer’s request.

Our technology has been deployed across the country in a variety of verticals, including automotive repair, home improvement, furniture, flooring, electronics and elective healthcare. We work with retailers to design and deploy a credit financing program that is easy for consumers and employees to use. Our goal is to help retailers sell more products and services through an experience that will bring customers back when a future need arises.

MTD: How do you recommend a tire dealer pitch the idea of secondary financing to a consumer? And when should the conversation begin?

McQueen (AFF): Customers come in all credit shapes and sizes. It’s important to be careful of putting a customer in a credit box, as age and appearance don’t drive a credit score.

Using phrases like “all credit types” speaks to customers of all credit (ratings) while signaling to credit-challenged consumers that you offer solutions specific for them and their needs.

Throughout the sales process, it’s helpful to remember MEMO, (which means) “mention early and mention often.” Here are some examples of how to use MEMO.

  • During intake and prior to the diagnosis: “Here at XYZ Tire, we offer payment options for all credit types.”
  • After the diagnosis, (you can say) “We found ‘X’ wrong, and we recommend ‘X’ be completed. With our payment options, we offer approvals up to $5,000 for all credit types.”
  • During checkout: “Will you be taking advantage of one of our payment plans? We have options for all credit types, plus you can save 5%.”

Bourgeois-Capozzi (EasyPay Finance): This is a really important question and one that is foundational to supporting a successful credit program for a merchant’s business. We spend quite a bit of time working with our merchant partners on this kind of training. What we have found is that there is a misconception that the market for financing in automotive is smaller than it is.

The majority of Americans live paycheck-to-paycheck and more than 60% can’t afford a sudden expense of $400, according to a 2018 Federal Reserve Report on Economic Well-Being of U.S. Households. In many cases, your customers feel selfconscious and embarrassed about their financial position, so it is critical to treat them with kindness and be open about the financing options you have available from the start.

Rather than bringing up financing options at the end of a quote or even worse, after the work has been done — when they are looking at the bill — let your customer know you have payment options available as part of the first communication.

Zayas (Katapult): Today’s customers want options. When it comes to offering financing alternatives to a consumer, the process should be as simple and straightforward for the customer as (it is) with traditional financing solutions. Lease-to-own is just one of several options available to meet the shopping needs of a wide range of consumers. If other financial options are not available or standard (credit) scores are a factor, a lease-purchase transaction with Katapult can open doors for customers to obtain the items they need, while allowing the dealer to complete another transaction The process for applying is quick, simple and transparent and allows greater flexibility than other payment solutions.

Consumers using lease-to-own can make recurring payments while having the option to purchase at any time. There is no long-term obligation to continue leasing and consumers can return the product to Katapult at any time with no further commitment other than for amounts past due. Additionally, there are several options to acquire ownership of the product that is being leased.

McNamee (Koalafi): No one likes awkward conversations or extra hassle. Declines can be uncomfortable for customers and your sales person. Asking the customer to go through the effort to fill out multiple applications with multiple financing companies can put the sale at risk.

There really shouldn’t be a pitch. When a customer does not qualify for primary financing, there should be a seamless transition within the credit platform or app to be considered for a lease.

Giordano (Progressive): Retailers can attract and empower customers by sharing purchase options as early in the sales process as possible. If a prospective customer is not aware of a dealer’s available purchase options, they may shop elsewhere, opt for lower quality and/or lower-cost items or postpone their purchase entirely.

Campbell (Snap): It all comes down to understanding your consumer. If you see that a consumer is needing a product, but experiencing stress related to the purchase, it may ease that tension by offering secondary financing. This can be done in several ways, including point-of-purchase signage, text-to-apply, email/direct mail or social media. Additionally, because Snap performs pre-approvals for financing, Snap can be sending customers to merchant locations with their approved amounts, encouraging them to get what they need, when they need it.

Nunziato (Sunbit): Offer it early and often. Forty percent of Americans do not have $400 for an emergency expense and 58% of services are declined. Even for those not in that bucket, many people simply would prefer not to pay large sums all at once. By letting customers know they can apply for no-interest installment loans and pay less today, the business will gain customers and incremental revenue.

Howse (Synchrony): Introducing the idea of financing to a customer starts well before the consumer engages with the dealer. The dealership must first train its staff to sell financing successfully. Employees must understand what financing is and what it isn’t, explain its benefits in simple, everyday language and handle customer hesitations.

Synchrony Learning Center offers practical training videos, information-rich PDFs and self-paced online courses covering these and many other topics on how to offer financing to drive more sales and loyalty.

Once a dealer engages with the customer, whether in a store or online, it’s essential to mention financing early and often. Throughout the journey, dealers should emphasize special financing offers and benefits, like making the purchase more affordable and the ability to pay over time. Dealers should also help customers understand how much they will pay each month, using tools like our monthly payment calculator and complimentary point-of-purchase promotional materials. It’s also important to note that the pandemic expedited the digital transformation of consumer financing, like most things related to commerce. Boosting awareness and accessibility to financing through online channels has helped tire dealers nationwide fuel customer engagement and business growth.

Turjan (Versatile): Using our technology makes it more likely that financing options — especially secondary finance options — will be pitched to the customer at all. The transition to secondary financing has been tricky in the past and was often highly dependent on employee training and comfort. Some associates can find it difficult or awkward to recommend a customer apply for a second round of financing if they’ve been declined or a customer may be embarrassed about having to start the process all over again.

Versatile’s technology turns this into a seamless process where an applicant is automatically transitioned to the secondary financing provider after being declined — without needing to reenter information or speak to an associate —which reduces the fear of denial.

MTD: How can financing options help a tire dealer close a sale?

McQueen (AFF): Remember the rule of four. Customers prefer to get four tires at once. If the customer is short on cash and does not know payment options, they may ask to only get two tires or fewer, which presents another opportunity to plug options for all credit types.

Upsell better tires with affordable payments. The tires the customer really wants may be out of their cash budget. Show them what their payments would look like if they were to upgrade and take advantage of a payment plan to get the tires they really want.

And offer incentives. Using payment plan options will typically cost your business less than credit card fees. Incentivize your customers to apply for and utilize these options by giving them a percentage or flat dollar amount discount.

Bourgeois-Capozzi (EasyPay Finance): Financing options won’t just help you close a sale. They will expand your customer base and will help you build long-lasting relationships with customers who need tires and services by providing them with payment plans that fit into their budget. We frequently see our partners bring in $10,000-plus a month by adding financing options and those merchants who commit to best practices around offering credit can easily double or possibly triple that number.

Zayas (Katapult): When working with non-prime consumers, lease-to-own can provide a hassle-free path to ownership of a needed product and may be one of the only solutions available. For this reason, lease-to-own programs continue to grow in popularity and are helping retailers nationwide build long-term relationships with customers. In fact, Katapult’s research found that enterprising retailers offering lease-purchase options for durable goods typically see a substantial increase in both conversion rates and average order value. Providing a range of options, including lease-purchase transactions, helps all consumers feel seen and financially included.

McNamee (Koalafi): Tire and auto purchases are often unplanned, so it’s important for businesses to promote financing before, during and after they provide a quote to help people feel more comfortable with this unexpected purchase. Introducing financing early and often drives more traffic to shops and can mean the difference between a customer choosing your shop over a competitor down the street. Financing gives customers more purchasing power, which opens up different or upgraded options for them and helps the business close sales. It’s a win-win.

Giordano (Progressive): Splitting a customer’s transaction into smaller and more affordable payments may alleviate hesitations or obstacles to making a single large payment up front. Combining multiple payment options with a simple and transparent application process, flexible payment schedules and the ability to take their items home on the same day allows retailers to offer an approachable way for customers to get the things they need when they need them.

Campbell (Snap): Financing can help close a sale by reducing and/or eliminating the stress related to paying for goods and getting the consumer back on the road. With that stress removed, consumers will have better shopping experiences and will often utilize said financing over and over — and recommend it to their family and friends.

Nunziato (Sunbit): By approving customers before an estimate, you can encourage customers to bring in their vehicle. By mentioning that payment options exist during the inspection, you can reduce anxiety about potential unexpected expenses. And with a solution that is fast and easy to apply for — with no hard credit checks — the staff can offer Sunbit whenever pricing is mentioned to make sure no one ever declines work.

Howse (Synchrony): Today’s consumer needs a way to pay for their automotive purchases, whether it’s an in-the-moment need like a damaged tire or routine maintenance. Financing enables the consumer to make the initial purchase and helps them afford it within their budget, so they can buy four tires instead of the one that may have blown out. It also allows them to have a way to pay for all their car care needs over time. There is a much higher incidence of repeat sales when they have a line of credit.

We continue to see increasing financing adoption as both consumers and dealers become more sophisticated. And the pandemic has driven the need for dealers to offer a better customer experience, which includes taking the friction out of closing the sale. For example, contactless commerce like our direct-to-device application technology enables tire dealers to provide a simple, intuitive, omnichannel experience for transparent financing offer terms, real-time approvals and purchases.

Turjan (Versatile): Financing can be a powerful tool for retailers, whether it’s positioned to drive the sale or save the sale. Often, the price of a repair or cost of a set of new tires can be an unexpected expense. Customers can be presented with a way to apply for financing on a self-service platform designed to maximize approvals, whether it’s while they’re browsing, waiting for service or at the point of sale. Having our platform available to all customers ensures that each of them will be offered the opportunity to apply for financing, if they so choose. Our data shows that flexibility helps close more sales at a higher average ticket price and drives repeat business.

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