5 reasons why you should embed credit into your products and services

Credit is the lifeblood of modern economies. People need embed credit to thrive just as they need oxygen to survive.

While this might seem like an oversimplification, it underscores the fundamental role credit plays in driving consumer behavior and business growth.

For businesses, conversions are the oxygen. Every marketing campaign, every product enhancement, every customer interaction is geared towards turning potential customers into paying ones. 

But even the most compelling marketing efforts can fall flat if consumers lack the immediate financial capacity to make a purchase. 

Think of the countless individuals who desire a product or service but find themselves temporarily constrained by their financial situation. They might adore your new smartphone, crave a dream vacation, or need a home renovation, but the full cost is beyond their immediate reach.

This is where embedded credit becomes indispensable. With flexible payment options, businesses can bridge this gap, converting potential customers into satisfied and loyal ones.

The rise of Buy Now, Pay Later models is a testament to this growing consumer need. As of 2022, there were 360 million users worldwide with 89% of them indicating they would use it over and over again. This innovative financing approach has disrupted traditional payment methods by providing consumers with a convenient and accessible way to make purchases.

If you’ve been indecisive about embedding credit into your products and services, here are 5 reasons that will convince you.

1. It’s a sure fire way to meet your customers’ needs

Sarah has been taking screenshots of expensive new parts for her faulty sewing machine. “When I have the money, I’ll buy it”. She has been repeating that for months, while staring longingly at her phone. But, her sewing machine is slow, costing her money, and making her customers angry because she can’t deliver as quickly as she needs to.

Credit empowers consumers. It transforms desires into realities. When customers have limited immediate funds, credit becomes the saving grace.

So now, with the option of buying now and paying later or getting a loan from you, as the vendor, Sarah can buy the parts she’s been dreaming of buying with a manageable repayment timeline. This way, she’s not overwhelmed by the cost. 

In the end, you’re not only able to sell your products, you’re also giving hope to a small business owner and helping her succeed.

Moreover, embedding credit into your offerings can help you provide the full value of your products and services to your customers because a  valuable product is only truly valuable when it’s in the hands of the customer.

So, it’s a win win.

2. Reduces abandonment rate and increase revenue

This is the most direct benefit of embedding credit into your products and services.

The latest research by the Baymard Institute states that nearly 70% of ecommerce carts get abandoned. This means that almost 70 out of 100 potential customers give up before making their purchase.

The culprit is often insufficient funds. But with flexible payment options, cart abandonment rates will reduce drastically, translating to more sales and revenue growth.

Check out Klarna, a Swedish fintech giant, who was recording 20,000 active monthly users in January 2019. They embed credit using the buy now pay later business model and by January 2020, recorded 180,000 active users.

By January 2021, the number grew to nearly 700,000. A couple months later, they had 970,000 active users monthly, and by September 2021, 1 million active users monthly!

You can bet the number has grown dramatically in the past 2 years.

3. Opens your products and services to a wider demographic

Offering credit to customers with varying financial capabilities can significantly widen your customer base especially if what you’re selling is an essential product/service e.g. a marketing training course.

For instance, students, young professionals, and individuals with fluctuating incomes hardly have disposable income. Credit options would make your products and services accessible to these demographics.

Credit can also help you attract customers who are reluctant to make large upfront payments.With installment plans or deferred payments, you can ease their concerns and encourage them to try your products or services.

4. Shows that you genuinely care for your customers’ well being

Customers appreciate businesses that understand their challenges and offer solutions.

When you provide credit, you’re essentially saying, “We understand that you might not have the full amount now, and we want to make it easier for you to access our products or services.”

Today’s market is so cutthroat, you need unique ways to connect with your audience. Empathy can be the one powerful differentiator for your business, making customers more likely to choose you over competitors.

So, it’s not just a strategic move to increase sales but also an opportunity to show your company values and is committed to its customers.

5. Increase customer lifetime value through credit

When customers use credit options, they tend to spend more over time because they would make larger purchase amounts, become repeat customers, and even promote your business among their family and friends through word of mouth marketing.

They also become more receptive to your upselling and cross selling efforts because they now trust you and have a positive relationship with you.

Featured read: 5 ways to restructure loans and work with struggling borrowers

How to embed credit into your products and services

Deciding how to offer credit to your customers involves two primary strategies: in-house financing or partnering with a financial institution.

1. In-house financing:

By extending credit independently, businesses retain full control over the credit process. This approach can create deeper customer relationships and potentially yield higher profit margins.

But, it requires significant upfront capital, robust risk management systems, and you have to be skilled in credit underwriting, collection, and compliance.

Businesses must carefully assess their financial capabilities and risk tolerance before embarking on this path.

2. Partnering with a financial institution:

Collaborating with a bank, fintech company, or other financial institution offers a more streamlined approach to offering credit.

These partners bring all the financial expertise, risk management capabilities, and established credit infrastructure you need.

This way, you can focus on your core business operations while expanding your customer base. 

But, this option often involves revenue sharing and giving up some control over the customer credit experience.

The best approach depends on various factors, including your business size, financial resources, risk appetite, customer demographics, and industry regulations. You need a thorough evaluation of these factors to determine the most suitable credit model for your business.

What you need to embed credit: BNPL or traditional credit

To embed credit into your products and services, you can explore the Buy Now Pay Later model or traditional credit but the decision would be based on your target audience, product/service type, and your business objectives.

BNPL is a more recent model that allows customers to make a purchase and pay for it in installments over a short period, often without interest. It is particularly attractive for Ideal for products or services with lower price points that can be paid off quickly.

Customers can get immediate access to products or services while spreading out the cost over a few weeks or months.

Featured read: How to use Lendsqr to build your BNPL app

Traditional credit is suitable for larger purchases, longer repayment terms, and customers with established credit histories. It provides more flexibility in terms of repayment structures but often involves more rigorous credit checks and underwriting.

Lendsqr can help you implement either option. Our comprehensive loan management software offers a range of solutions from BNPL integrations to full-fledged credit underwriting and management to support your business growth.Simply reach out to us at [email protected] to get started.