Retail financing is appealing to consumers and merchants alike. Consumers can make purchases without paying the total cost upfront, while merchants benefit from the simple fact that they’re generating more sales. Merchants that offer retail financing, and more specifically a waterfall lending option, at the point of sale are likely to see more loan approvals, higher sales, and happier customers.  

To learn more about retail financing and the value that waterfall lending offers to retailers and consumers alike, PaymentJournal sat down with Mitch Ferro, CEO of Mastercard Vyze and Brian Riley, Director of Credit Advisory Service at Mercator Advisory Group.     

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What is retail financing?

At its core, retail financing is when retailers offer customers alternative lines of credit to make purchases that they can’t, or prefer not to, pay for upfront with cash or an existing line of credit (such as a credit card). There are a variety of retail financing products that make sense in a variety of situations.  For example, installment loans, which have traditionally been used for more expensive purchases, today are being used for smaller ticket items as well.

Historically, consumers have relied on their traditional lines of credit to make purchases then pay the bill at a later date. In times of economic uncertainty and distress, however, consumers tend to preserve their lines of credit; this was apparent upon the onslaught of COVID-19, when credit card purchase volumes quickly fell. Similarly, lenders have tightened their lines of credit and portfolios in the interest of risk management.

At the same time, consumers still need to have the ability to make such purchases which is where retail financing comes in. Retail financing allows a consumer to make a purchase with alternative lines of credit which exist outside of traditional credit cards. “That’s a good option [to preserve a line of credit] as you look toward the uncertainty we have in the economy,” noted Riley.

Retail financing is in high demand

Consumer demand for retail financing is growing. In fact, McKinsey estimated that consumer demand for retail financing is $1.