Brick and mortar retailers rapid growth

According to the National Retail Federation, close to 80% of consumer spending is happening in brick and mortar retail stores. Be it mass affluent consumer luxury goods to health care and pet care, America consumers are heading to their local businesses and malls in record numbers.

There are 30 to 40 million small businesses across America that drive most of the United State’s GDP (Gross Domestic Product). GDP measures total goods and services produced within a country. Consumer spending is increasing year over year and consumers demand new ways of pay and finance these goods and services.

Here are some quick facts from National Retail Federation 

• Core Retail Spending: The "Core Retail" number (excluding Auto Dealerships, Restaurants, and Gasoline Station spends) is at US$5.29 trillion.

• Total Retail Spending: Total consumer spending in the retail section is over $5 trillion.

• Spending Forecast: The NRF is forecasting a 2.7% to 3.7% increase in core retail spending in 2025.

• Channel Distribution:

  • Close to 80% or over 81% of consumer spending is happening in traditional brick-and-mortar or in-store retail stores.

  • E-commerce represents about 19% of all total core retail spending.

Technological advancements in payments 

From point of sale systems with physical devices to mobile or miniaturized mobile payment systems (think Apple Stores), consumers are on the receiving end of rapid innovation over the past decade.

From a consumer’s perspective, we have been using QR code, our phones and even our watches to pay for goods and services when we are interacting with payment systems in retail locations. 

In a more professional setting such as a dentist and or veterinarian’s office, there might be office staff working with a Point of Sale financing system integrated into their workstation that handles scheduling and payments. In these situations, banks and lenders can interject themselves to provide financing options through the use of mobile devices. An financing application can be sent via text message and have the patient and pet parents complete the application. The results can be prompted back to the office manager and get the appointment schedule to deliver that treatment.

Embedded finance everywhere

In the past decade, we’ve seen third party point of sale financing firms glowing and prospering in various categories. Short term point of sale financing opportunities have evolved into BNPL or Buy Now Pay Later. 

BNPL has met its regulatory and portfolio challenges. Some of the recently IPO’ed BNPL players have seen their stock price fall as much as 70% in the past 24 months. We’ve seen demand surge in the short term merchant financing space but lack of identity verification, fraud detection as well as traditional credit underwriting and income verification is lacking. 

Bigger BNPL lenders have to quickly jettison their portfolios to third parties to stop their bleeding and refocus on underwriting and tightening up their credit boxes. They are starting to realize that different types of merchants online or offline have vastly different economic models.

Mass affluent consumer luxury goods might have a higher margin that’s willing to discount more with third party BNPL lenders versus furniture and mattress stores that may have razor thin margins but might be open to collaborate with lenders that offer longer retail installment contracts but tighter with their credit underwriting.

We also see that some of the retail outfits are moving away from third party lenders to first party lending. Instead of getting 60 cents on the dollar merchant discount rates with their lenders, they are willing to use their own technology to collect 30% downpayment and the remaining 70% of the payments are carved up into 6, 9 or 12 payments.

Movement from third party lending to first party lending

Moving to first party lending reduces cost for retailers and helps to retain most of all of their revenue and margin. They also have greater control over their underwriting criteria and flexible in the amount of downpayment they can collect as a downpayment to hedge risk

Retailers can leverage their own decisioning process and even price their product differently depending on their client’s credit risk if it’s applied uniformly based on credit and income level. In addition, retailers can integrate their loyalty and insurance products as part of the onboarding process.

Branding and experience is also important to many retailers. To have an out of body experience when it comes to financing erodes their brand and brand credibility. Having their own branded financing process builds more trust with their clients. Technology is now available for retailers to build their own financing without lifting a finger from application, decisioning, pricing to payment collections. 

Many brands are also manufacturers themselves and data collection and analytics is important to help the entire vertically integrated entity to learn from customer behavior. When working with third party lenders, this type of data is rarely shared with the retailers and manufacturers which makes it difficult for retailers and manufacturers to adapt their product roadmap with respect to shopping and financing behavior.

As a first party lender, brands and their manufacturers partners have access to all of the information from customer application to repayment behavior. This data is crucial for manufacturers and their retail partners to develop products and price points that are more in tune with their customers' spending habits, affordability as well as latest trends. This data collected by first party systems will help everyone in the organization understand their product line up and customer spending behavior with greater detail than ever before.

About LendAPI

LendAPI is the core infrastructure for embedded finance, known as one of the fastest-growing embedded finance infrastructure companies in the world. Since its inception in 2024, the platform has provided market leadership in indirect financing across industries ranging from automotive and marine equipment to luxury consumer goods and services. Our technology enables a variety of indirect lending scenarios, delivering millions of financing opportunities for banks, credit unions, retailers, and fintechs. LendAPI provides a complete, private-labeled solution, from customer experience and administrative tools (including in-store co-pilots) to loan servicing, compliance, and licensing support, to launch in-house BNPL products quickly and efficiently.