Why Read this Article
With all the new payment methods introduced to the market lately, it can be hard to keep track, let alone understand how each one affects your business. Products like Apple Pay, Google Wallet, PayPal Credit, Affirm, Prosper, Lending Club, and Venmo each have different use cases and advantages. Do you understand the differences between them? This article will help merchants understand what these payment companies offer, when and why consumers use each, and why merchants might consider offering them to increase consumer delight and maximize sales.
Payments, Payments Everywhere
Do you remember your very first purchase? I do. I bought a Snickers bar at 7-11 using a wrinkly $10 bill. At the time, cash was standard fare for payment. Little did my 12-year-old self know that a mere 15 years later, I’d be able to pay for that same candy bar via more than a dozen different payment methods, mostly digital.
It can be difficult for businesses to keep up with consumer financing trends. Should you offer financing to consumers, and if so, which payment products should you adopt? To help you decide which payment methods are best for your consumers and will help drive the most sales, let’s break down a few of the more popular ones:
- Apple Pay and Google Wallet: Used to facilitate in-store (and some online) purchases
- Affirm and PayPal Credit: Used to buy now and pay over time
- Prosper and Lending Club: Used predominantly to consolidate debt, but also to finance major purchases
- Venmo: Used to reimburse other individuals
Let’s take a closer look at each.
- What is it? A digital wallet for Apple consumers that allows them to store their credit card and other payment information under the umbrella of a single online account. Available to consumers with an iPhone 6 and 6S (for now), along with a few other Apple compatible devices. Consumers complete purchases by waving their iOS device near a compatible payment terminal, or via thumbprint authorization for transactions on a mobile device.
- How are consumers using it? Consumers are making everyday offline point-of-sale purchases by tapping their iOS devices at terminals, or in some limited circumstances, purchasing items directly on their mobile device where Apple Pay is integrated.
- Why offer it? If you have significant foot traffic into your store, Apple Pay can help reduce friction at checkout since consumers can literally tap and go. Thumbprint authentication is also a great way to bolster security and reduce fraud. That being said, while everyone has thumbs, not everyone has an iPhone 6 or later. Also, digital wallets in general are still gaining a following, with only 12% of consumers reporting having used a digital wallet service outside of PayPal (according to a Comscore survey).
- What is it? Much like Apple Pay, Google Wallet is a digital wallet that allows consumers to aggregate various cards and accounts (including loyalty accounts) into one virtual place. Google Wallet can be accessed by consumers using iOS and Android devices in the U.S. with a Gmail account.
- How are consumers using it? Like Apple Pay, Google Wallet is useful for consumers when paying for everyday point-of-sale purchases at terminals, and at some online stores. Since it’s compatible with Android and iOS, a broader population of consumers can access it relative to Apple Pay.
- Why offer it? As with Apple Pay, Google Wallet can be useful in speeding your in-store consumers through long lines at the checkout with a mere tap. While Google has established its reputation online, the jury’s still out on if they’ll take over the digital wallet space in the offline space. Though it was first released in 2011, Google Wallet has yet to dominate the market.
- What is it? Instant online point-of-sale financing that allows shoppers to buy now and pay in affordable installments over the course of several months. This empowers consumers to budget for their loan repayments, and afford higher priced items that they might not be able to pay for upfront. The application process is quick and determinations are made instantly based on a borrower’s FICO score and other data bearing on the borrower’s creditworthiness. This approach is different (and potentially more accurate) than other credit products. Additionally, Affirm offers flexible terms with transparent finance charges and no hidden fees. As they put it, Affirm allows consumers to “Pay over time, on your terms.”
- How are consumers using it? Consumers use Affirm to pay for everyday and big-ticket purchases that they might not be able to afford upfront. Affirm offers cash flow relief to budget-minded consumers who choose to pay for their purchases over several months. This means shoppers can better afford more of the items they want to buy. Also, since Affirm doesn’t base its lending decisions on FICO alone, more shoppers may qualify for financing through Affirm than they might with credit cards.
- Why offer it? Affirm offers a unique, instant financing solution to consumers who are looking for flexible repayment options. Since more consumers can better afford their purchases, merchants offering Affirm may see lower abandoned cart rates, higher sales conversions, and higher average order values. Furthermore, since Affirm is fundamentally different than credit products, and can potentially expand financing access to a larger population of consumers, Affirm can be a compelling point of differentiation that sets you apart from your competitors.
- What is it? A revolving credit line giving consumers the option to buy now and pay over time. Certain purchases come with promotional “no payments + no interest if paid in full in 6 months” offers. Consumers have the option to make no payments for six months, and as long as they pay in full by the end of the six months, they will not be charged interest fees. If not paid in full by then, consumers are charged interest calculated from a few days after their purchase date.
- How are consumers using it? Like Affirm, PayPal Credit gives flexibility to consumers looking to spread payments over time. Consumers who can repay their debt within six months might benefit from the no-interest promotion for certain purchases. However, if they cannot pay in full within the promotional period, consumers face the risk of having to pay back interest charges at an APR of up to 19.99%. And if consumers continue to carry a balance, they may need to pay compound interest (i.e. interest on the interest they’ve accrued).
- Why offer it? Like Affirm, PayPal Credit offers consumers a way to buy now and pay over time. PayPal Credit is also an accepted form of payment for a number of online businesses that already accept PayPal and for purchases on eBay, which might make the integration process more straightforward. However, unlike Affirm, which offers fixed installment financing, consumers might face unplanned interest (and compound interest) if they carry a balance for an extended period of time. Shoppers also need to be mindful of late fees. Merchants should determine if this might be a more costly option for your consumers than using a solution like Affirm.
Lending Club and Prosper
- What are they? These are not payment methods, per se, but marketplace lending vehicles that have made the news lately. Both Lending Club and Prosper offer consumers personal loans up to $35,000, funded by both individual and institutional investors.
- How are consumers using them? The majority of consumers obtain loans from Lending Club and Prosper to refinance and consolidate higher interest debt. They can also use funds to finance major purchases, such as automobiles, home improvement projects, and engagement rings, among other reasons.
- Why offer it? At this point, neither lenders offer a retail payment solution that merchants can integrate and offer to shoppers. Consumers can use financing from either of these companies to transact. One thing to note is that both Lending Club and Prosper maintain stringent lending standards, which can make it difficult for some consumers to qualify for loans.
- What is it? A platform for payments between individuals, and a social forum. In other words, Venmo allows friends to pay each other, then share a clever post on Venmo’s newsfeed touting their repayment (ie “CooooooofffffeeeeEEEeEE” or “Booze and friendship”).
- How are consumers using it? Small, everyday payments among acquaintances and friends, or repaying someone for big purchases such as vacations or rent. Utilizing this technology helps alleviate the awkwardness of splitting a bill amongst friends or requesting a payment, and allows consumers to transfer money without fees.
- Why offer it? Venmo currently doesn’t offer a solution for merchants just yet. We bet you’ll be hearing more and more people saying “Venmo me” instead of “PayPal me” in the near future.
What You Should Do as a Merchant
What do these different payment methods mean for your business? The key is to prioritize which options are most relevant (and provide the best experience) for you and your consumers. Start by asking which might help you accomplish your business objectives:
- Are you experiencing high cart abandon rates and low basket sizes? Try out Affirm or PayPal, which give your consumer cash flow flexibility.
- Are your consumers tech-savvy and dissatisfied by long wait times in your stores? Apple Pay or Google Wallet might do the trick.
- Can’t move really high-priced goods like automobiles? Keep an eye on Lending Club or Prosper as a potential future solution for your consumers.
- Do your consumers love to share news about their purchases with their friends and loved ones? Venmo might be a good fit if they offer a merchant payment solution someday.