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April 25, 2019

Credit cards must offer more benefits to defend against POS finance

By Patrick Brusnahan

With point-of-sale (POS) lending in growth, credit card providers risk losing a significant portion of their business unless steps are taken to offer more material benefits to consumers.

There are three main components to the growth in POS lending.

Firstly, technology has enabled small contractors and merchants, which previously only accepted cash, to offer POS lending facilities.

Secondly, larger merchants are increasingly offering it to customers as an alternative payment method to pay for goods. Store cards have a reputation for being expensive and merchants are finding that offering POS lending is a key factor in the decision making for some consumers and credit cards.

To push sales ‘over the line,’ many merchants are subsidising the credit cost by offering “interest-free” periods. Thirdly, rising consumer confidence levels and increased activity in the housing market over recent years has driven the purchase of big-ticket items.

Although there is nothing credit card providers can do about the above factors, they can ensure credit cards are as attractive as possible to consumers as the opportunity to use POS lending proliferates. In this area, there is work to be done.

According to GlobalData’s Consumer Payments Survey 2018, an average of only 55% of consumers in Anglosphere markets used a credit card because it offered them a material benefit such as help in spreading the cost, added security, or rewards. The remaining 45% simply used a credit card because they were comfortable with it.

If credit card providers are to protect their market share in consumer lending, they must improve their propositions so that a higher percentage of consumer are choosing to use their credit card because of a material benefit.

With 45% of consumers using a credit card for no other reason than comfort, the opportunity for POS lenders is sizable, particularly when merchants are offering it at subsidized rates.

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