By Robert Schuijff, CEO, etika

Introduction 

Lending is evolving at a rapid pace with increasing innovation happening at the point-of-sale. Micropayments have become the ‘go-to’ for many when it comes to online spending. The first iteration of Buy Now Pay Later (BNPL) via third-party lenders, has already given way to a second version of the BNPL offering that is claimed to rival spending on credit cards. Fintechs, such as Monzo and PayPal, are also getting in on the act offering customers micropayment options and traditional banks are even moving into the space.  

However, not all spending is equal. The damage credit rejection can have is more prominent than we think. A YouGov study, commissioned by etika, found that a credit application decline can significantly impact customers’ mental health, credit score, and future relationships with retailers.

So how can we navigate a landscape that is rapidly evolving, while keeping consumer wants and needs at the forefront of operations? 

A snapshot of the consumer finance ecosystem 

One of the biggest shifts in the pandemic over the past few years is the explosion in e-commerce and rhe acceleration of online shopping. Being stuck within the confines of our homes for many induced a newfound use and respect for online shopping. Add to that, the emergence of smart devices and multiple ways to shop at home or on the go and you have the ideal e-commerce experience. 

According to Shopify, two years ago 17.8% of sales were from online purchases. This number is expected to reach 21% in 2022 which represents a doubling in the ecommerce market share over two years. For many retailers, e-commerce is a way to gain back market share that was being lost on high street, but what many hadn’t considered is how consumers might pay for these purchases. Many have partnered with lenders to provide varying versions of BNPL but more often than not, the popular lending models are proving questionable and unethical. 

In the past we have witnessed a variety of controversial outcomes from high interest credit cards and payday loans to current day credit to finance FMCG (fast moving consumer goods). Consumers are able to apply for loans regardless of their ability to repay it and have found themselves in challenging situations that result in more than just bad credit and a missed purchase. The results can be far reaching, impacting customer wellbeing. 

The impact on consumers and the need for ethical finance 

Today’s borrowers want flexible and convenient payment options, but not at any cost. Based on our recent survey in partnership with YouGov, credit decline impacts consumer well being with 54% saying that they would be upset or very upset and 16% going so far as to say it would impact their mental health. Beyond this, credit declines also negatively impact relationships with retailers, with 70% saying that they would take their custom elsewhere. What has become patently obvious is the need for a new approach – an ethical approach that keeps sight of the consumer. 

But what do we mean when we say ethical finance? We mean finance that isn’t  over and above individual affordability. We mean finance that is pragmatic, realistic and within the realms of what a consumer can afford. Finance that doesn’t come with nasty surprises like late fees.

Two main things happen when ethical finance is embedded into retail offerings. Firstly, when retailers tell customers what they can afford and offer finance accordingly, the number of declined customers plummets. Secondly, the improved customer journey reduces drop-off and therefore increases sales conversion. The result is a more ethical approach to consumer finance.

A socially-conscious lending model 

It seems clear that ethical finance doesn’t just benefit the consumer but can also positively impact retailers and online retailer customer relations. 

Championing customers means being transparent about what they are signing up to. For a fairer service, we believe that consumers deserve flexible finance that fits their situation and needs. With a responsible payment platform, businesses can deploy tailored, smart lending technology that can take the hard work out of the lending process for a more socially-conscious lending model.

At etika, we promote borrower wellbeing by applying ‘soft’ credit checks and innovative proprietary tech to the lending process, eliminating fees and providing flexible payment options for fairer, safer, and more achievable finance for more people.

As inflation continues and the economy remains uncertain in the face of geopolitical unrest, many will look to consumer finance providers to cover the cost of items that they might not otherwise be able to afford outright. Big ticket items like white goods and furniture are likely to remain on the list for many consumers, but this should be financed in a way that doesn’t harm consumer credit or emotional health. Retailers and lenders need to be able to strike a balance  between encouraging purchases and properly means testing for affordability. This approach provides a win-win situation for retailers and their customers.