Credit picture looks hazy for coming year

By Joseph Dobrian, Contributing Editor

HIGH POINT — What do consumer credit providers foresee, for 2024, in terms of demand for various types of financing of retail purchasers?

Companies agree that the outlook is uncertain — as it often is in a Presidential election year — and that consumers appear to lack the disposable income they’ve enjoyed in recent years. However, providers add that the desire for new furniture remains high, and so will demand for financing options.

How will these providers adjust their strategies (if at all), specifically when offering credit options for high-ticket items such as furniture?

“Going into 2024, demand for diverse financing options will remain a major factor for merchants,” said Vicki Turjan, president of Versatile Credit, which offers connections to more than 35 lenders. “The expectation of an omnichannel presence has become standard, with shoppers anticipating consistent and extensive financing options, regardless of where or how they shop.

“By leveraging technology such as Versatile’s automated intelligent application routing, merchants can match their shoppers with the most suitable financing based on their specific needs. This approach helps to close sales while reducing partial approvals and application fatigue.”

Turjan said she doesn’t expect interest rates to change much over the next several quarters. The consumer has less discretionary income and less cash today compared with last year, she admitted, and she said she expects employment levels to be the strongest influence on how consumers behave.

“Consumers have become more thoughtful about financing options as part of their purchase decisions,” said Turjan.

Executive vice president Ryan Slobodian, at Snap Finance, said he anticipates increased demand for Snap’s type of financing.

“Offer solutions across the spectrum,” he advised retailers, “because you don’t know a customer’s backstory. Your staff must know how to offer options, so it’s important for us to offer training to sales associates to help them make the deal. Customers tend to be spending more on rent, which means less disposable income for durable goods.

“Factors that might affect the market in the coming year include overseas wars, lingering pandemic weirdness and interest rate uncertainty. I foresee choppy waters but a pause in interest rate increases.

“There’s still consumer demand for furniture, but people are fearful,” Slobodian added. “The tax season might bring us more lift than we had seen in previous years, with some unlocking of demand.”

Danielle Vincent, head of retail card services at TD Bank (which is rolling out a new identity, TD Point of Purchase Solutions, for 2024), observed that retailers are shifting to shorter-duration payment plans, which are not attractive to all customers. She advises her clients to focus on customers who already have an open line of credit, using more proactive marketing.

“We double down on marketing and arm retailers with many different financing options,” she said. “We anticipate a pullback in spending.

“Retailers understand this. There’s a fight for loyalty, a need to reflect inwardly on customers who already have financing,” Vincent said. “You know what they spend. Collaboration is key. What are your largest events, and how can we maximize them?”

She said her survey data shows 63% of retailers believe that purchasing will rise or stay steady this coming year, while 28% say that higher interest rates have reduced sales. There’s also a marked shift to online purchasing.

“After a large purchase, a customer will typically come back within six months for a smaller purchase,” she noted.

Tony Cerino, senior vice president of partnerships at Kafene, agreed that interest rates probably won’t rise in the near term. He contended that the current economy is robust, with high employment and a slowdown of inflation. However, he warns, the tide could turn quickly.

“Millions of consumers now don’t have any savings at a time when credit is expensive,” Cerino said. “We could see significant demand-side pullbacks. We’ve seen this year that the American consumer has been more resilient than many forecasts predicted, but financial hardship continues to be a reality for many, especially for those caught between rising cost of living and high interest rates.

“Recent years produced an explosion of cheap debt-based products, but debt doesn’t offer the wiggle-room that consumers need during times of uncertainty,” he said. “Flexible financing like Kafene’s lease-to-own offerings can be cancelled at any time. This year will be all about flexibility.”

Mark Denman, executive vice president at ChargeAfter, also commented on the current economic uncertainty.

“Economic uncertainty will cause lenders to maintain tight risk models and adjust their portfolios, making it more difficult for consumers to be approved for loans that meet their needs,” he predicted. “At the same time, demand for consumer financing is likely to rise as shoppers seek alternative ways of paying for goods and services. We’ve seen a trend of consumers dropping to lower credit ratings, thus an increase in demand for second- and third-look loans. Our platform makes it easy for retailers to offer different lending products from multiple lenders.

“We do not see near-term improvement in lender programs. Retailers need to play the long game while thinking of short-term impacts,” Denman suggested. “As more uncertainty comes into consideration, for example, regulatory impact on late fees, retailers should explore third-party platforms that ensure customers get the right programs and products.”

Henry (Hank) Chionuma, vice president of business development for Fortiva Retail Credit, said he anticipates steady or increasing demand for financing. Higher funding costs and late fee changes are apt to result in tightened prime lender underwriting, he added.

“We are well-positioned to include offers to consumers whom prime providers have historically approved but are now — or will be — declining,” Chionuma said. “Our strategy remains unchanged. Ultimately, we allow the economy and the resulting data to drive our decision-making. Thus far the consumers we serve appear to be stable, and we remain confident of our ability to meet the needs of our merchant partners and customers.”

Curtis Howse, executive vice president and CEO at Synchrony, said his company recently completed its ninth Major Purchase Journey study, which found that rising costs have made financing more appealing to purchasers of big-ticket items, including furniture and home decor.

“Half of the consumers surveyed said recent price increases have led them to seek financing options, and 66% agreed that financing makes larger purchases more affordable,” Howse said. “While I can’t make any predictions about where the economy is headed, I see plenty of opportunity to continue driving customer engagement and sales with financing in the new year.”

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