MADISON, Wis. (5/26/15)--By providing financing at the point of sale for large consumer purchases, credit unions have an opportunity to spur loan growth and become an affordable and preferred option for consumers and providers, according to a new white paper from the Filene Research Institute.
The annual potential market size for point-of-sale financing (POSF) is $391 billion, or roughly 3.5% of annual consumer spending, with health care, electronics, and home goods as the leading spending categories, according to the white paper, “Blue Ocean Lending for Credit Unions: Point of Sale Financing.”
The POSF marketplace is driven by the needs and behaviors of three players: financing agents (financial service providers), providers (retailers, health care providers) and consumers.
The POSF market presents a relatively new opportunity for credit union loan growth. Many financing agents currently offer opaque and high-priced services to consumers; credit unions have the opportunity to provide a tremendous leap in value to both consumers and providers.
Providers want to focus on running their business, the paper said. They demand a product that’s extremely easy to set up and explain, and expect lending decisions to happen immediately. Providers also need high approval rates.
The consumer’s main priority is often, depending on the purchase, to make their purchase today. They don’t necessarily care who’s providing the financing--which means that any focus on the “credit union difference” might be less than compelling--and they probably don’t understand the difference between closed- and open-ended lending.
Because credit unions are generally new to the market it would be wise to focus efforts on the most underserved segments: smaller, local providers and the mass of consumers who have very few options in the current POSF marketplace
Credit unions should recognize that although the aggregate POSF marketplace is potentially large, this lending segment won’t in the short-term solve all loan growth goals. POSF products are simply an additional arrow in credit unions’ lending quiver.