What is POS financing, and how can it significantly impact your business?

As consumers shift to digital payment methods like credit cards and digital wallets, buy now, pay later (BNPL) and other point-of-sale (POS) financing options continue to grow in popularity.¹

What is POS financing?

POS financing — which includes BNPL and other flexible installment loans — may help empower consumers to conveniently make purchases and spread payments over time. It occurs at the point of sale, which is typically in person at a checkout counter or online via a checkout webpage.

Generally, POS financing allows customers to complete a transaction without traditional payment methods like cash or credit cards. This not only caters to the rising demand for flexible payment choices but also helps facilitate immediate access to high-value items that may have otherwise been out of reach.

Compared to traditional financing — which involves obtaining loans or credit before making a purchase — POS financing allows consumers to complete a transaction in real time. Shoppers can usually apply and get approved without prior credit approval or a pre-established line of credit.

From a retailer's perspective, POS financing can help drive sales, attract a broader customer base, and create a seamless, hassle-free shopping journey. Learn more about POS systems.

How does point-of-sale financing work?

Here’s a general breakdown of POS financing from a customer’s perspective:

• Checkout. At checkout — whether in person or online — a customer can select POS financing as a payment option. This may be presented alongside other payment methods like credit/debit cards, digital wallets, or cash.
• Application. A customer fills out a short application, providing basic personal details like name, contact information, and sometimes social security number. Some systems may require more comprehensive information.
• Approval. The system typically processes the application in real time at checkout. If approved, the customer is presented with the monthly installment amount, the duration of the repayment plan, interest rate (if applicable), and other relevant terms and conditions.
• Completion. If a customer accepts the terms, they can complete the transaction using POS financing as their payment option. The purchase amount is divided into installments, and the customer is billed accordingly until the total amount is paid off over the agreed-upon period.

Learn more about offering installment options and how to add financing options to checkout pages.

Potential benefits of offering POS financing to customers

There are several potential benefits to offering customer financing for both customers and businesses.

Customers can expect:

• Flexible repayment. POS financing may offer various repayment options that cater to individual preferences, such as weekly or monthly installments.
• Near-instant decisions. Real-time credit checks and decisions can make the POS financing process quick and convenient.
• Seamless process. Because POS financing usually integrates into the online or in-store checkout process seamlessly, it helps create a smooth shopping experience.

Businesses may experience:

• Increased average order value. POS financing may encourage larger purchases by allowing customers to repay the amount over a specified period.
• Competitive advantage. Offering POS financing can differentiate a business in the market and attract customers seeking flexible payment choices.
• Customer appeal. POS financing can attract a new, wide base of customers.

When is POS financing a good choice for businesses?

POS financing may be a good choice for many different types of businesses, particularly those involving big-ticket items like furniture, electronics, and travel.

Drawbacks and considerations of POS financing

POS financing may involve potential drawbacks and considerations. Here are some examples:

• High borrowing costs. POS financing isn’t always interest free. Customers may face high interest rates and fees, so it’s important to clearly state the terms and conditions.
• Credit checks. There may be soft or hard credit checks required.
• Temptation to overspend. POS financing may encourage overspending.
• Returns and refunds complexity. Handling returns and refunds with POS financing can be challenging.
• Communication and transparency. Clear communication of terms, credit score impact, and data privacy are essential for customer trust.
• Limited provider choice. Exclusive agreements with financing providers may limit customer options.
• Regulatory compliance. Adherence to financial regulations is necessary.

Alternatives to point-of-sale financing

Besides POS financing, there are alternative financing options that businesses and customers can consider. Examples include:

• 0% APR credit cards. These cards may offer an interest-free period and flexibility for ongoing purchases. However, the interest-free period is usually temporary, requires good credit for approval, and can result in retroactive interest if not paid off in time.
• Personal loans. Personal loans normally have fixed interest rates, longer repayment terms, and no retroactive interest. However, interest costs typically accrue over the loan term, a formal application process is necessary, and they may require good credit for favorable terms.

Learn more about business loan options and strategies for choosing a small business loan.

Implementing POS financing in your business

To implement POS financing, businesses can opt to collaborate with third-party BNPL providers, which offer ready-made solutions that can be seamlessly integrated into the checkout process.

No matter the provider, POS financing is designed to be a frictionless part of the customer journey, allowing shoppers to easily select and apply for financing if desired.

Keep in mind that while POS financing offers various advantages, it also presents challenges like regulatory compliance, customer education about financing terms, and responsive customer support.

Discover more about POS system integration.

Taking the next step

Before implementing POS financing into your business, it’s important to understand your unique needs and your customers' preferences. While it may boost your sales and attract a broader customer base, it may also carry potential risks.

Learn more about PayPal POS Systems and PayPal Pay Later.