What is Alternative Financing?
Alternative financing is a new online payment method involving short-term loans at the point-of-sale (POS). It offers customers the opportunity to purchase a product now and pay later, in installments.
Two examples of potential alternative financing use cases are online purchases and healthcare payments.
One way this new payment method can be used is when making a purchase online. A customer purchases an item online (such as furniture or an appliance) and through alternative financing, has the option to pay for the item in installments.
Another example of this new online payment method in action is when a patient pays in installments for healthcare visits. They can also use alternative financing to pay for repeat visits or treatments through patient payment plans. In addition, elective surgeries and procedures are one of the largest points of alternative financing in the healthcare space.
Benefits of Alternative Financing
Benefits to the Developer
- Versatility - This payment functionality allows software developers to offer more ways for their customers to get paid & grow their business. It offers additional payment methods for purchasers who may need these options. Alternative financing allows developers to give merchants flexibility as to what financing options are offered to their customers.
- Competitiveness - This payment method is becoming a popular option across industries. Total transaction value in the alternative financing segment amounts to $6,117.2m in 2020, and is expected to grow to $9,472.9m by 2024. Software developers need to offer this functionality within their solution in order to keep up with their competitors. It’s a product differentiator that can increase adoption of your software solution.
- Revenue - Alternative financing drives another revenue stream for both developers and their merchants. It can increase volume at merchants’ stores, which allows developers to demonstrate how their software can help drive consumer spending.
Benefits to the Developer’s Customers
- Flexibility - Allowing merchants to offer their customers additional payment options is especially beneficial when a customer's cash flow is limited. It provides purchasers with an alternative to a credit card. Further, the ability to make set monthly payments allows for better budgeting.
- Timeliness - Alternative financing provides a “buy now, pay later” method of payment that allows a merchant’s customers to get their item quicker. It’s essentially the opposite of layaway. With layaway, a customer pays for an item in installments over time and they don’t receive the item until they’ve paid in full. With alternative financing, a customer can purchase an item and then pay for it in installments after they’ve received it. These alternative payment options allow people to buy goods and services they want or need but couldn’t afford to pay for in full at the time. They can also be leveraged strategically to help with necessities such as automobile maintenance.
- Higher Revenue - Offering alternative payment options increases the purchasing power for the end customer. It’s been shown that offering alternative financing results in a higher number of sales and higher average order values for merchants. A recent Forrester study showed that offering an alternative financing option can result in a 17% increase in incremental sales and a 15% increase in average order value.
Alternative financing is a new payment method that offers many benefits to both software developers and their merchants, such as more flexibility and a new revenue stream. Consumers want multiple options for payment and your solution needs to keep up with the changing times - are you prepared?