How changing technologies, user expectations and demographics will reshape Canada’s retail financing industry
A decade ago the consumer financing sector was in the midst of integrating internet technology. Phone calls remained the dominant communication method connecting businesses and lenders, and documents were generally exchanged via fax or courier. The potential of the internet to simplify and hasten document sharing and communication were in their infancy. These days it is impossible to imagine doing business – including retail financing – without the internet. Yet even as the internet’s potential is slowly realized and integrated in consumer financing, new disruptive technologies, trends and behaviours are emerging that will continue to shape the industry.
Instantaneous Financing Results
Many see technology as a great enabler for consumer financing, making it increasingly convenient, secure and fast. A faster internet combined with improved application processes will see the emergence of near-instantaneous, in-store loan application results, while advances in smart phone technology will enable a quicker, more convenient way of doing business. Vancouver-based Crelogix Vice President of Quality Assurance Nick Carter has watched first-hand the changes technology made to retail financing over the past 40 years – and predicts there is much more to come. “Most importantly, advancing technology will continue to speed up financing transactions,” he said. “At the same time it will reduce the requirement of businesses to have in-depth knowledge about consumer financing, so it will become increasingly convenient for businesses to offer financing to customers.” Improvements in technologies such as digital signatures, internet security and loan application processes will also aid this – creating a future where borrowers will be able to safely complete point-of-sale loan applications with almost instantaneous results.
Smart Phones, Smart Business
Smart phones represent a great opportunity in consumer financing, particularly in Canada, which lags behind much of the world when it comes to integrating mobiles payments. Mobile phones purchasing is a drastically under-utilized service here: Only 2% of consumer purchases in Canada were done using mobile payments, according to a 2014 GfK report, compared to 83% in China and 33% in the US. Retail financing over mobiles, meanwhile, is almost non-existent. However, Mr. Carter predicts this will rapidly change. “Communication between businesses and lenders is quickly moving from email and phone to text” Mr. Carter said. “As this technology improves this trend will continue and soon we could see the majority messages of business transactions done between lenders and their partners, and lenders and consumers done over platforms such as iPhones, Android devices and tablets.”
An Evolving Consumer
Changing technologies will not only alter the way consumer financing is offered, but will also change how consumers demand it. In the future consumers will access financing before they even leave the house to go shopping, according to LMG Finance Director Rob Williamson. “People are becoming more apt to doing things – including financing – over the internet and through the phone than they are face-to-face because of their confidence in the technology these transactions are being run through.” The result will be shoppers entering stores and dealerships with pre-approval for loans to buy the big-ticket goods and services they want. While this may seem like it will make life easy for businesses – it will actually require them to work increasingly closer with credit providers. This is because consumers will need to easily and quickly access credit pre-approval services through businesses’ websites or directly via businesses’ retail financing providers.
More Flexible Lenders
Accordingly, the days of a cookie-cutter approach to offering consumer financing being successful are dwindling. As technology advances, expectations shift and consumers demand more – business expectations will also change. Lifeline Business Solutions’ Chris Brown sees a future where there will be increased pressure for lenders to be flexible so that they can meet changing user needs. Mr. Brown learned a lot of valuable lessons pioneering in-store retail financing at Yamaha Motor Canada dealerships in the late 1990s. Primary amongst these was the need for lenders to be flexible enough to meet businesses’ various needs. “To me the biggest challenge lies with the providers,” he says. “Our success was based on our lending partner being flexible when it came to looking at things like different options of how to run the program, how to set its parameters and how to set rates based on credit worthiness. Future-wise, we will need more lenders that are willing step outside that financing box, and be innovative and flexible to meet changing needs.”
New Markets and Opportunities
There will forever be new markets and opportunities for consumer financing to tap into. More recently K-12 tuition, career colleges and home renovation sectors have started embracing it, and are slowly overcoming initial consumer doubts about using credit to buy services. Increasing convenience and an aging population will continue to present new opportunities. Mr. Carter predicts non-elective healthcare could soon follow as provincial governments slow access to the system. “Canada’s population is aging, and patients in BC already need to wait 9-12 months for a knee replacement,” he says. “An aging population will apply more pressure to the hospital system, meaning it could become just as common for non-elective healthcare to use retail financing as elective currently is.” An aging population could also mean increased demand for home improvements and repairs – growing home renovation financing opportunities. As Canada continues to change, so will demand and opportunities for financing evolve. In the future any market dealing with expensive goods and services will likely have the chance integrate consumer financing.
Consumer financing will present many new opportunities and challenges for Canadian businesses. While advancing technology and simplified systems will make it easier for businesses to use it – they will also increase the cost of missing out. Smart phones may make doing business more convenient – but they represent a whole new system that needs learning. It will also become vital for increasing numbers of businesses in different sectors to learn how to use retail financing, as providers branch out into to new markets. Imagine a world where consumers can use monthly payments to buy almost any goods or services they want, getting pre-approval on an iPhone and walking away with their new product or service that day. This is the future of consumer financing, and it’s closer than it may seem.