How the Shift to Mobile Is Fueling Online Consumers’ Interest in Instant Financing

Online merchants looking to increase their sales volume may want to consider offering instant financing.

A study by Researchscape International reveals that 75% of respondents would be more likely to purchase from an online retailer that offers instant financing than one that does not. Another 28% said they would be very likely to switch merchants to make a purchase using instant financing.

Researchscape surveyed 2,024 consumers, ages 18 and up, over a four-day period in April 2017. The study was sponsored by Klarna North America.

Millenials are the generation most likely to embrace instant financing as they tend to shy away from using credit cards for purchases. They prefer to do most of their online shopping using a mobile device, which can be difficult to enter credit card account data on, Jim Lofgren, chief executive for Klarna North America, tells Digital Transactions News.

Indeed, 40% of survey respondents who own a smart phone say it is too much trouble to enter a credit card number on their phone. Eighty-eight percent of respondents own a smart phone.30% more customers make purchases if instant financing is offered.

“We see as much as a 200% increase in spending among consumers making a purchase using instant financing over those using a credit card,” Lofgren says. “Instant financing is a way for consumers to increase their purchasing power as they are no longer limited by the open-to-buy available on their credit card.”

While the study does not provide figures on what percentage of online merchants offer instant financing, it does say 28% of respondents have used instant financing and 47% would like to be presented the option. “This is an underserved market,” Lofgren says.

In addition to Klarna, other companies offering instant financing for online transactions include PayPal Holdings Inc. and Affirm Inc.

Merchants working with Klarna are provided with marketing tools to increase consumer awareness about the availability of instant financing on their Web site. One commonly used tool is to show the monthly payment over a 12- or 24-month period with instant financing next to the price of the item on the product page.

“If consumers know that the financing is available in advance of the purchase, it can definitely fuel purchase volume,” says Rick Oglesby, president of AZ Payments Group LLC. “Consumers may buy from a particular store because it offers financing as opposed to buying at a store that doesn’t, and consumers may spend more when they know financing is available.”

Klarna offers instant-financing plans for six to 36 months to 70,000 merchants globally. To apply, a consumer must select Klarna as his payment option at checkout. Next, the shopper selects the length of time over which he wants to make payments and enters the last four digits of his Social Security number and date of birth. Applications are approved or declined in seconds.

After a consumer is approved, Klarna pays the merchant for the purchase. The consumer receives a monthly email invoice and can make payments through the Klarna portal.

While there’s no accurate way to measure what a consumer would have spent compared to what he actually did spend because of instant financing, Olgesby says survey data and consumer-adoption data are pretty clear that consumers do like to borrow to fund their purchases.

“There are solid arguments to offer financing regardless of the ability to measure a specific change in sales results,” Oglesby says.