“Understanding that consumers use retail credit for reasons other than needing it to make a purchase is key to growth in lending and encouraging repeat business.” – Mintel, Consumers and Retail Credit – UK – Feb 2018
In 2017, the UK’s retail finance market grew by 9% to reach £8.99bn of lending, according to data from the Finance and Leasing Association. This growth may not come as a complete surprise. A combination of innovations have made the application and supply of finance far quicker and simpler for the end consumer, as well as for the retailer. Economic trends and consumer preferences have also contributed to its popularity; and will continue to do so as the industry expects to reach £12bn of lending by 2022.
However, although the growth of retail finance may be well-known, what is not so well understood is who is applying for this finance, and why. It’s understandable to assume that the majority of customers applying for finance at the checkout are less wealthy, or have fewer saving, and so require finance in order to afford the item. However, research by Mintel in their latest Consumers and Retail Credit UK Report has proven the inaccuracy behind this misconception.
Surveying 798 customers who have used retail credit within the past three years, 59% of respondents said that the ability to pay with finance wasn’t essential to make the purchase. In other words, they didn’t use finance because they couldn’t otherwise afford to buy the item. This proves that customers of wealthier demographics use retail finance too – and importantly, can be encouraged to complete the purchase if offered finance. Retailers whose target audience is more affluent should therefore still offer retail finance to their customers to increase sales and average order values.
So why are these wealthier customers encouraged to purchase when offered to pay with finance, despite not needing to.
1. To be in better control of their finances
Of the above Mintel respondents, 37% said they used finance simply because they wanted to split the cost of payments. By paying in monthly instalments, the customer can better manage their finances and much expenditure, regardless of their income/savings. It’s also a useful way to keep credit separate from other forms of borrowing, making it easier for them to keep track of repayments and ensure they clear their debt.
2. It doesn’t cost more, so why not?
Offering finance at 0% is a crucial incentive for the customer. Many of today’s consumers are reluctant to draw upon credit card or loans because of their reputation for high APRs and misleading fees. However, by offering 0% interest, the customer pays absolutely nothing more than the cost of the purchase. In the Mintel report, 38% of the socio-economic group AB (the highest social grade) said they used retail credit purely because it’s interest-free. What’s more, as well as securing the sale, 0% finance can also foster brand loyalty among customers, and so drive repeat business?
3. To keep their credit card ‘free’ for unexpected payments
Many people don’t like to rely on their credit card for more everyday purchases, because when an unexpected or emergency purchase arises, they want to know they can instantly and easily fall back on their credit card if needs be. By paying for all other larger expenses with retail finance, they can do just this.
Global Asset Finance Limited and Partners’ retail finance solution is used by a huge range of sectors and retailers, including those in the luxury industries as they recognise the demographics of their customers doesn’t affect the popularity of retail finance.