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4 Ways Modern Credit Is Solving Omnichannel Retail Challenges

AffirmChief Revenue Officer

Innovation in the retail industry has always been linked to the evolution of payments, especially the use of consumer credit. But the birth of e-commerce in the late 1990s and the emergence of mobile-first, digitally-native consumers has made it increasingly hard for retailers to attract and convert shoppers. While previous generations of offline retail could rely on traditional credit instruments to attract customers and retain loyalty, they don’t work for modern consumers who expect instant approvals, tailored experiences, and seamless payments.

Credit isn’t going away but it is rapidly evolving in a way retail didn’t expect, and it’s time for the industry to move away from its reliance on traditional credit. Flexible, digital, and individualized modern credit is an omnichannel tool that can help retailers provide interconnected, personalized experiences, earning loyalty from generations of modern shoppers.

The growing pains of retail and credit

You can trace the modern credit card system back to the early 1900s when department stores realized they could deepen the one-to-one relationships they had with customers and generate long-term loyalty by offering a store-branded charge card.

Diner’s Club offered the first credit card in 1950 that could be used at any store, which meant any retail business could join and extend credit to any consumer who carried plastic. By the end of the year, 500,000 people had signed up.

This was a huge moment for consumer empowerment in the form of universal spending potential, but it also marked the moment when credit started to evolve away from providing retailers a direct connection between spending and loyalty. The next solution retail turned to was the private label, or store-branded, credit cards.

Just like the initial credit systems developed by department stores, these cards helped large retail brands maintain one-to-one relationships and retain customers with rewards programs & exclusive discounts while giving shoppers the freedom to use the line of credit anywhere they spent. But private label cards have failed to enable omnichannel shopping experiences and have fallen apart as loyalty & rewards tools for retailers.

Modern credit should unify experiences across all channels

Retailers increasingly struggle to appeal to consumers whose shopping habits no longer follow a clear pattern. Shoppers are increasingly blurring the lines between online and offline. While a majority of consumers research their purchases online, just as many – about 62% – still prefer going into a brick-and-mortar store to try before they buy.

If there isn’t a consistent experience across both channels, the customer will be lost. About 75% of customers expect a consistent experience wherever they engage with a merchant – online, in person, via mobile, or even over the phone. That means they want consistent products, inventory, prices, and dependability on how they can pay.

Offering a modern credit solution that’s easily accessible – and isn’t just a plastic card – but is also optimized for mobile use while creating a frictionless experience for the customer will go a long way towards earning their business.

Use payments to personalize the shopping experience

Not only is retail straddling an online/offline existence but consumers have more choices than ever, whether it’s big box stores or brand direct. And to cut through the noise, customers are looking for more meaningful connections when they buy. It’s why, according to one study, 83% of consumers say they want more personalized shopping experiences.

Credit cards are a static solution geared towards the masses. It’s the same piece of physical plastic for everyone that doesn’t offer much, if any, flexibility on giving consumers control over how they pay. Instead, retailers need to offer a credit solution that is customizable on their end and personalized for their customers.

Customers want credit options that are transparent about the total costs, including interest, and that gives them the flexibility to choose their own payment terms. Most people either don’t want another piece of plastic or worry about the potential pitfalls. Offering them a point-of-sale financing option that puts them in the driver’s seat is what may ultimately make them follow through on a purchase.

The need for better customer insights and ROI

One of the major obstacles of the omnichannel era is tracking the profitability of a single customer, as well as their sales staff. If a customer researches a product online and then comes into a store to buy, or vice-versa, a merchant doesn’t always have insight into that customer’s shopping journey. They may spend time with a store associate only to follow through online later. Traditionally, that would be considered a lost sale for the associate.

With a payment system that is consistent across all of their points-of-sale, it’s much easier to gain insight into the customer journey. That associate can begin the order in-store even if the customer doesn’t follow through on the spot. If they make the purchase later, merchants can now understand how their customers are shopping and the value of that associate’s time. It’s a simple process that makes the omnichannel experience even more effective.

Begin accessing a greater customer market

Store-branded cards are used as much for customer acquisition as they are for loyalty. The goal is just to get them to sign up for it. The problem is that there is a large group of customers that won’t be approved. Store-branded cards are no different than mass credit cards that are built on outdated credit modeling and underwriting technologies based solely on the FICO score, which was developed over 25 years ago.

About 67% of millennials don’t have a credit card because they simply don’t like the credit options given to them. It’s a Catch-22; to access credit you already have to have credit. The Consumer Finance Protection Bureau (CFPB) estimates that there are 25 million Americans that are credit-invisible and another 19 million people that have a limited credit history. Not only are younger customers more averse to traditional credit than previous generations, there’s just a lot of people that won’t be approved even if they want it.

The CFPB, among others, are recommending looking at alternative data sources to accurately assess someone’s ability to responsibly access credit. Modern credit options are doing just that to empower today’s omnichannel experience while making it obtainable for more consumers.

Conclusion

Retail shouldn’t give up on its old friend credit; the omnichannel shopping experience is providing an opportunity for retailers to acquire and retain loyal customers. But the stakes are higher when it’s easier for brands to go direct to consumers while Amazon is on the other side, amassing a retail empire the likes of which has never been seen.

One way to connect with customers across all channels is at the point-of-sale where brands can create consistency and personalization, provide better insights, and access a larger customer market. Shoppers want a friendlier, more transparent form of consumer credit that isn’t a plastic card, and merchants need to take note to survive and grow in today’s retail environment.

Rob Pfeifer

AffirmChief Revenue Officer

Rob is the Chief Revenue Officer for Affirm, where he leads the sales, marketing, business development, analytics, customer success, and new businesses.

Most recently, Rob was the Chief Risk Officer for Affirm, where he led the Data Science, Risk & Analytics Team. In addition, Rob was also the VP of FP&A.

Prior to joining Affirm, Rob was at Chegg.com where he worked on marketing analytics and forecasting their Textbook & Digital Services businesses. Rob began his career in financial services at UBS Investment Bank, focused on corporate finance and M&A in the technology group, followed by JMI Equity.

Rob holds a B.A from Stanford University where he majored in Economics and Philosophy & Religion.

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