Lenders Use Marketplaces to Bring Credit to Small Retailers

For Main Street’s small retailers, offering customers personalized financing options can be what separates a sale from a drive by.

As much as consumers are cautious about what they buy right now, they’re also selective in terms of which credit products they use to finance their purchases.

And not just one or two offers, Ed O’Donnell, CEO of Versatile Credit, told PYMNTS Karen Webster, but a slew of them that have been personalized to suit the consumer and the particular transaction.

“Increasingly, lenders are realizing that small- and medium-sized businesses offer tremendous opportunities,” he said, noting lenders’ traditional bias lending to the “big, sexy names” in retail, including the big-box stores, in their consumer financing efforts.

But now, Versatile Credit has been working in tandem with lenders to offer those solutions for smaller merchants at scale.

While SMBs and entrepreneurs are aware of the advantage that lies in offering financing in-store or online, it can still be tough for them to do so. As a result, the furniture retailers, the fashion boutiques, the salons or automotive shops that line Main Street often wind up missing out on top-line growth.

“Anybody who’s running a business right now is making decisions about the return on investments,” he said.

For the lenders, banks and nontraditional lenders among them, he said, there’s a lot of lifting in trying to manage 10,000 SMBs independently.

“The banks and the lenders, too, are realizing that it’s costly and takes a long time to develop their own technology solutions and bring them to market,” O’Donnell said.

But as he said, through the platform approach that brings those retailers and lenders together, merchants can offer shoppers customized options through a consortium of lenders. In terms of mechanics, Versatile Credit partners with over 30 prime, near-prime and no-credit-needed providers to deliver financing to shoppers across the FICO spectrum.

By way of example, he pointed to the development and launch of TD Complete, a multi-lender waterfall application and sale processing platform hosted by Versatile Credit. The solution allows retailers to instantly approve more customers by providing real-time access to financing options from multiple lenders.

The platform streamlines authorization, sales and settlement for all lenders within the platform through a single point of access (rather than having to grapple with multiple platforms). For the retailers, there’s the benefit of having a multi-lender, integrated financing solution that in turn can help capture more sales.

The optimal approach leverages a “cascading” process, one in which a customer’s application begins with prime lenders offering promotional financing. Should that application be denied by this group, the application “cascades” to near-prime lenders. Another rejection cascades the application to sub-prime and, eventually, no-credit-required lenders often offering rent-to-own options.

“The technical lift becomes lighter for the lenders and for the merchants and quickly gives them lending products to take to the consumers,” he said.

The model is especially valuable to the in-store setting, as many SMBs may not operate online. O’Donnell noted that the financing offers can be made through in-store devices and in the aisles, or through QR codes that bring the offers onto the consumer’s own device.

“You can privately do the application process in a couple of minutes on your own without anybody shoulder surfing you — it’s more personal,” he said.

At the moment, he said, even consumers who are making more than $100,000 annually are taking advantage of promotional credit, 0% financing and even installment options.

Traditional Retail and Beyond

Beyond traditional retail, he noted that elective healthcare procedures represent an area of particular promise. He noted that Versatile Credit has gone to market with a national dental support organization (DSO), leveraging a dozen lenders in order to offer financing for various treatments. He said, too, that home improvement is a vertical that is growing quickly in the wake of COVID-related homebuying.

“If people do need to get windows or a roof, or they want to redo their kitchen, there are better credit products available and more specialized lenders available than there were two or three years ago,” he said.

Looking into 2023 and beyond, Versatile Credit has doubled the number of lenders on its platform in the past two years.

“And we’ll double again in the next two years,” he told Webster, “which really winds up being to the consumer’s benefit because it’s all about choice.”