For any business – and small businesses, in particular – giving customers multiple ways to pay is a smart move. And if you offer high-ticket items, it’s also wise to give your customers financing options. It could make a huge difference to your bottom line.
In fact, a recent comScore study conducted on behalf of
PayPal revealed that about 25% of buyers who use PayPal Credit – PayPal’s consumer financing product (more on that below) – said they wouldn’t have made their most recent purchase if financing hadn’t been available.[1]
The takeaway? Shoppers are looking for more ways to pay than just debit or credit cards. If your business sells products with higher price points, you may be missing out on sales by not offering consumer financing.
Due to their size and scale, big-box retailers have offered customers these options for a while. But the landscape has changed, and new services are enabling merchants to offer their customers better financing alternatives, seamlessly and more affordably. As a result, more orders are coming in and often at higher amounts. PayPal finds that some small businesses see up to 68% larger transaction sizes with PayPal Credit compared to credit and debit card transactions.[2] Today's consumer financing services are levelling the playing field between big merchants and small businesses.
"This doesn't surprise me at all," said Tommy Colletti after hearing these results. "My business has really benefited by the long-term financing options we offer."
Colletti runs
The Music Zoo, a Roslyn, New York retailer of custom musical instruments – specifically guitars, amps, basses, parts and accessories from dozens of major and boutique manufacturers. Colletti's business sells high-end products to people who are passionate about music, but often don't have the cash on hand to pay for a custom Fender guitar, for example. And that's where financing has helped.
"Guitars can be expensive,” he explains, “and to get a good one people are willing to finance the cost and pay it out over time. Providing a longer-term credit option has helped us considerably."
The Music Zoo offers
PayPal Credit, which Colletti's customers find simple to use. At checkout, they select the PayPal Credit option, provide a few pieces of information, and get a credit decision in seconds. Once approved, customers get access to financing offers like No Payments + No Interest on purchases of $99 or more if paid in full within 6 months.[3] The retailer gets paid in full, up front, by PayPal Credit.
PayPal Credit also assumes the credit risk and handles the liability of collecting payments from the consumer. Meanwhile, Tommy can stay focused on what he does best: making sure his customer gets the best guitar that she can afford. "Times have changed and paying by the month is very acceptable. Many of my customers lease cars for 36 months, so why not also spread out the payment of a guitar too?" he said. "It just makes sense."
Of course, consumer financing isn't for every retailer. If you're selling low-priced items, it’s likely that accepting credit cards is sufficient. But if your business sells higher ticket goods - jewelry, leisure, appliances, and yes, guitars - then this should be offered to every customer. It's a service to help them afford what they need. And it's a great way to increase profits.
[1] Source: Study commissioned by PayPal and conducted by comScore Research. Sources: 1. comScores 1M person US desktop panel of online shoppers, transactions completed in Q3 2015, 2. comScore customer survey fielded in January 2016, among 3,010 online consumers who have used PayPal Credit.
[2] As reported in Nielsen’s PayPal Credit Average Order Value Study for activity occurring from April 2015 to March 2016 (small merchants) and October 2015 to March 2016 (midsize merchants), which compared PayPal Credit transactions to credit and debit card transactions on websites that offer PayPal Credit as a payment option or within the PayPal Wallet. Nielsen measured 284890 transactions across 27 mid and small merchants. Copyright Nielsen 2016.
[3] PayPal Credit is subject to consumer credit approval, as determined by the lender, Comenity Capital Bank. Applicable for qualifying purchases of $99 or more if paid in full within 6 months. Customers check out with PayPal and use PayPal Credit. No Payments and No Interest if paid in full in 6 months on eligible purchases when you check out with PayPal and choose PayPal Credit and your total cart transaction is $99 or more. Interest will be charged to your account from the transaction posting date (which is usually within a few days of the purchase date) if the purchase balance is not paid in full within 6 months.
Gene Marks writes daily for The New York Times newspaper and weekly for Forbes magazine, The Huffington Post website, Inc. magazine, Entrepreneur.com, Fox Business and Philadelphia Magazine.
The author was compensated by PayPal to write this piece. The information in this piece has been prepared by PayPal and is for informational and marketing purposes only. It does not constitute legal, financial, business or investment advice of any kind and is not a substitute for qualified professional advice.