Blue Ocean Lending for Credit Unions: Point of Sale Financing

This study presents research on the U.S. point of sale financing (POSF) marketplace. POSF is defined as providing financing at the point of sale for large consumer purchases. We estimate the annual potential market size of this market at $391 billion, or approximately 3.5% of annual consumer spending with health care, electronics and home goods as the leading spending categories. Along with the research, we have included a decision matrix tool that will guide you towards the optimal POSF vertical markets based on your needs. 

The POSF marketplace is driven by the needs and behaviors of three players: financing agents (banks/credit unions, startups) providers (retailers, health care providers), and consumers. 

This study discovered many actionable items including: 

• The POSF market presents a relatively new opportunity for credit union loan growth. Most financing agents currently offer opaque and high priced services to consumers; credit unions have the opportunity to provide a tremendous leap in value to both consumers and providers. 
• POSF is an effective tool to increase provider purchase volume, enable consumers to purchase large-ticket items and generate new loan opportunities for the financing agent. 
• Many consumers who will qualify for POSF have more than one financing option—the easiest being their existing credit card (whether general-purpose or private label). This doesn’t mean a credit card is necessarily the consumer’s smartest financial choice, especially if they carry a balance, but it’s one that involves no further action before purchase.

Moving beyond the key findings, we offer a set of recommendations for credit unions interested in exploring this blue ocean lending opportunity: 

• Consider Underwriting Changes: Credit unions are vigilant lenders that underutilize underwriting automation; however, the POSF market likely requires a more aggressive automated underwriting strategy, as fast approvals are paramount (consumer wants financing today). 
• Accentuate Pricing Advantages: The dominant financing agents charge providers and consumers near usurious rates (zero-percent financing offers notwithstanding); credit unions that get into this lending category have the opportunity to provide a higher value of service at a lower cost to both providers and consumers. 
• Determine (and Ramp Up) Business Development Capabilities: Like other indirect lending markets, credit unions will need to develop and nurture provider relationships in the POSF market. Many credit unions may not currently have the capacity to deliver this service, so you will need determine if you can afford to build this capability. 
• Focus on Key Vertical Markets: The POSF market is segmented along a variety of attributes. Credit unions can focus on untapped niche markets and be successful in serving smaller, local providers in a handful of underserved industries, such as elective health procedures. 

Filene Research Institute thanks CU Direct for their generous financial and intellectual support to this important research.