If you are a retail customer in most European countries, you are quite familiar with this sight:
If you are from the US or the UK, chances are this will not be a recognizable image. There is a fundamental difference in the way retail consumer credit is built and distributed between the US/UK and Central Europe, which can be summarized as (I am oversimplifying):
- USA/UK > revolving credit through credit card (financial institution or merchants)
- Rest of Europe > installment credit in store or through payment card (financial institution or merchants), often linked to a specific purchase. The interest cost is either carried by the customer or the merchant.
In that perspective the launch of companies such as Affirm, Bread in the US, as well as the geographic extension of Klarna are quite interesting. Effectively, they are introducing in the US installment credit at checkout, a very European product dominated in its traditional form by companies often linked to banks such as BNP Paribas Personal Finance, Santander Consumer Finance, Credit Agricole Consumer Finance, except the new players are starting from e-commerce and mobile e-commerce checkout.
If there is one think that ecommerce website hate, its the Cart Abandonment Rate. It basically means you had everything right from acquisition to product mix, to site/app experience but when comes the time to pay, the user drops out. Making the checkout experience seamless is a constant concern and making any change / adding additional steps is a risky move. This will be a challenge for the emerging players who have to prove offering credit brings more users than it deters in the checkout process.
On a broader scope, the impact of Fintech on the American Credit Landscape is one of the most interesting trends in the recent years. Whether it is the new crop of credit at checkout players or the marketplaces lenders such as Payoff* or Lendingclub, they all participate in Credit Transformation, moving consumers from Revolving Credit to Fixed Term Credit. Compounded by Millenials’ attitude toward Credit Cardshttp://www.bankrate.com/finance/credit-cards/more-millennials-say-no-to-credit-cards-1.aspx , I can’t wait to see what consumer finance will look like in the coming years.
Are we at the beginning of a move beyond Credit as we know it?