If the evolution of consumer credit were to be compared to that of the motor vehicle then currently it is still at the Model T stage. Implementing a more nuanced approach to assessing credit risk, re-framing of the consumer proposition and tinkering with the business model is about as far as any innovation has penetrated the sector.
With the UK’s buy now pay later market at £2.7 billion, regulation is slowly but surely catching up with this sector. Over optimisation of consumer agreements and providers funnelling users into the ‘sweet spot’ for revenue generation has, in the eyes of the UK’s Financial Conduct Authority, led to adverse consumer welfare issues which has resulted in it now becoming a regulated activity here.
Due to lengthy agreements with retailers the firmly ensconced positions of incumbent firms providing store cards and other PoS credit options has especially stifled in-store innovation. Retailers can earn decent income from their consumer credit providers, way back in 2012 Macy’s reportedly earned $865 million from their agreement with Citi Retail Services.
What all of this illustrates is that there is significant momentum to overcome for any new entrants, you really need to have something that’s 10x better.
The route that payments take from customer to retailer is a convoluted one. Some companies have developed solutions to address these inefficiencies and alleviate transaction fees for the retailer, along with delivering minimal consumer benefit but nothing has gained meaningful traction.
In offline retail innovation in payments has largely been window dressing. With everybody and their aunty wanting a seat somewhere in the payments transactional layer entering this market is an extremely tough prospect, especially considering the well capitalised and entrenched incumbents.
The key to unlocking true innovation in payments and consumer credit lays in blending any solution with data, preferably real-time granular data.
‘Over the top’ offerings that don’t fully integrate with retailers’ data will only ever gain limited traction. As will proprietary offerings from individual retailers, no matter their size, a holistic view of consumers’ observed data and declared preferences is ideally required in order for anything to be useful and therefore more likely to be widely adopted.