Highlights from the 2023 Merchant Advisory Group annual conference

How merchants benefit from financial inclusion

The Koalafi team recently attended the Merchant Advisory Group's 2023 Annual Conference alongside some of the country's largest merchants and leading payment providers. At this year's conference, one of the themes was the value of providing financing options to customers from all credit backgrounds. While most Merchant Advisory Group merchant members offer private label cards and pay-in-4 options, many customers are looking for alternatives. After speaking with merchants and attending merchant-led panel discussions, we compiled the key reasons merchants are expanding their financing to include options for more consumers. We also highlighted some of the merchants' advice on seamlessly integrating additional options to enhance the customer experience.

Retailers shared that customers are increasingly seeking financing options, and providing financing options for all customers is essential in meeting their expectations.

Why merchants are expanding their financing options to include credit-challenged consumers:

• Increase sales: Over one in three consumers are credit-challenged and can't access credit at mainstream rates.** These consumers rely on financing more than prime consumers to purchase larger ticket items and may avoid shopping at stores that lack financing options. In some cases, lease-to-own financing drives more incremental customers and higher repeat customer rates than other types of financing.

• Show empathy for customers' diverse situations: Merchants acknowledged that if you have not personally had to overcome credit obstacles, it can be hard to relate to credit-challenged consumers. Merchants and financing providers discussed many reasons why a customer may temporarily have a low credit score from divorce, limited credit history, recent immigration, or lack of financial education. Secondary and tertiary financing are valuable tools that enable lower credit consumers to access a merchant's high-quality products without stressing their budget. Even though secondary and tertiary financing options may sometimes carry higher consumer costs than prime financing, data shows that consumers still accept these offers at the same rate. This demonstrates how important it is to customers to have flexible financing solutions catered to their credit background.

• Meet customers where they are: Retailers shared that customers are increasingly seeking financing options, and providing financing options for all customers is essential in meeting their expectations. Younger consumers tend to have below-average credit. These consumers are often establishing brand loyalty, so it's a critical time to ensure you have the payment options that support them as they begin their financial journey.

• Increase adoption of your private label card: Offering secondary and tertiary options in addition to prime options can more than double overall approval rates. When sales associates are confident a customer will be approved for financing, they are more likely to promote private label cards, funneling more customers into the application flow.

How leading merchants are implementing a wider range of financing options:

• Make it easy for customers: It is possible to offer more financing options at checkout without causing more friction for customers. Large merchants use multi-lender, waterfall, platforms to smoothly integrate various financing providers, allowing customers to enter their information only once while still being considered by multiple financing providers.

• Ensure the costs are clear and transparent to the customers: Besides providing a seamless experience, merchants discussed that educating their customers on the cost of the financing options and how they work was equally important. It is crucial for providers to clearly outline all costs and fees upfront in the application process.

• Align the financing experience with your CX and across all channels: As customers increasingly shop in one channel and check out in another, working with financing companies integrated into your channels is essential. Finding financing partners offering additional value to the customer is also important. For example, Koalafi provides our customers with credit-building opportunities.

• Promote financing throughout the shopper journey: Merchants acknowledged that you're missing out on sales opportunities if you only promote financing at checkout. Merchants convert more traffic when they promote financing throughout the entire shopper journey.

Koalafi is a sponsor of the Merchant Advisory Group and partners with leading omnichannel furniture, appliance, electronics, mattress, and tire and auto repair businesses. We enable merchants to offer affordable and convenient financing options to near-prime, subprime, and consumers. In today’s challenging consumer environment, we are working closely with our retail partners to help them increase conversions, without reducing margins, while also meeting their customer’s high experience expectations. We believe financing is about more than the transaction and also support our customers with credit-building opportunities and education. Koalafi is available in-store, online, and through a virtual card and is seamlessly integrated into top eCommerce, POS, and waterfall platforms.

*Based on 2023 National Retail Federation rankings by sales

** 2022 Oliver Wyman study, “Financial Inclusion and Access to credit”