Embedded Financing, Point of Sale Financing and BNPL

Point of sale financing has been around for decades, it is often offered inside of retail locations. We’ve seen it in the form of layaways, co-branded credit cards where only minimum payment is required or just a general ledger merchants keep on their books for trusted clients.

Lately this financing activity’s got a new name. BNPL or Buy Now Pay Later. And a whole slew of play on phrases such as X Now Pay Later is popping up everywhere representing niche or specific types of product or services offered which can be paid in a form of installment loans.

In an even more novel approach, some of these financing activities are bent into subscription plans where a monthly subscription payment is assessed in exchange for product and services.

No matter the format or terminology, for consumer or small business merchants to offer these types of credit requires a lot of trust that their customers won’t renege on their promise to pay. A good percentage of spend is now happening on line and these faceless transactions put additional pressure on the merchants to accept a certain type of risk.

Major Players in BNPL Market

In comes these major players in the BNPL market where they carry the credit risk and offer financing to help merchants to do more business. 

Players such as Affirm, Afterpay (acquired by Block, formerly known as Square), Karlan, Zip, Sezzle are all flooding the market with their capital and technology. Even technology giants such as Apple and Paypal are offering “Pay in 4” type of services to their customers. Amazon is doing the same for their clients.

Long ago, when I worked at JPMorgan Chase, Chase Freedom credit card allows users to identify payments in their statement to pay over time. It never really caught on before more open platforms started working with merchants bypassing the credit card network

Today, BNPL is so pervasive in our lives that burritos can be purchased and paid for over four payments. Some of these silliness are often made fun of in internet memes as “late stage capitalism”.

Draw Backs of “Winner Takes All” BNPL Players

However popular this space has become, many merchants choose not to work with these giant BNPL players and choose to finance their goods and services themselves. We’ve summarized some of the drawbacks of working with large BNPL players here.

1. Complexity of product and services delivered. The traditional BNPL players offer a rather simplistic checkout experience with minimal interaction. Because they have to offer their platform to a wide range of merchants, they have to normalize their platform that attempts to work with every merchant’s workflow. That’s simply not the case. A merchant that finances furniture versus a merchant financing pet care have different workflows, back office activities as well as credit requirements. They need to leverage systems that are flexible to adapt to their needs.

2. Captive and Non Captive retail network. Some of the merchants own their store fronts and they can deliver a consistent menu of product and service, associate training with standard product and services, but some merchants also work with other affiliated merchants to deliver product and services and this makes it complex for the main merchant to deliver tailored experience for their affiliated networks. Only a platform with configurability at the merchant level can accommodate their needs.

3. Transactional Cost. With larger players, merchants are made to pay a hefty fee, sometimes as high as 7.99% of the MSRP whenever the merchants use these platforms to finance their own clients. The analogy here is similar to when merchants use credit card payment systems where they are made to pay a merchant fee assessed by the issuing bank and the card network to allow merchants to use their credit card terminal to accept payments. This fee is unattainable and erodes merchant’s margins. And some of the medium sized and bigger merchants simply refuses to pay, even though they would like to offer installment payments themselves.

4. Merchant Discount Rate (MDR). In addition to transaction fees that merchants need to pay to use BNPL platforms, they are also being asked to hedge credit risk for the financing companies behind these BNPL platforms. Sometimes these platforms are asking the merchants to pay anywhere from 2% to 15% or more percent off of the MSRP in order to protect lenders from hemorrhaging from excessive losses. The transactional cost and merchant discount rates make this form of financing totally unaffordable. Larger players are looking elsewhere for alternatives.

Perhaps one of the biggest barriers to entry for medium and large merchants to run their own BNPL program and increase their top line while reducing their cost is technology. There hasn’t been a platform built to provide technology for merchants until LendAPI’s POS/Embedded Financing arrived in 2024.

Modern BNPL Technology For The Masses

We developed our platform with Point of Sale, Embedded Financing and BNPL in mind. We built our platform as a multi-layered, multi-tenant platform where merchants can manage all of their retail partners whether they are direct or indirect with pinpoint accuracy.

We’ve summarized some killer apps and features that a modern point of sale financing platform must have to drive more businesses to medium and large merchants and give the freedom to create their own BNPL platforms.

1. Private Labeling and Configurability. We’ve developed a platform that’s completely private labeled. Our platform can also be embedded and installed within our client’s infrastructure. This piece of software becomes a critical component of our client’s overall enterprise architecture. The platform is 100% customizable with do-it-yourself configuration tools that can give the most accurate control to our clients down to how each individual consumer is taken care of. 

   

2. Location Management. Perhaps the most important feature in our platform is the fact that you can create as many locations as possible. Each location can represent a store, a brokerage, an office or even an individual. We call this feature Tenant Management. When a location is created, a web portal is automatically created. You can add users under this specific location or the administrator of this location you’ve identified can login and add their own users. You can then assign different types of applications to this location for them to start sending you applicants. There are a number of customization features you can use to provide a custom logo that this location can use to associate their application with the main merchant.

   

3. Credit Risk Management. In our platform, you can identify specific underwriting criteria as well as risk based pricing for each of the locations you’ve identified in the location management functionality. This is important for the main merchant to provide concise credit tolerance threshold or specific pricing guidelines for each of their locations. Some locations might be selling vastly different products and services than other locations within their network. So having a specific location based underwriting and pricing strategy will help the main merchant to pin down specific needs of each location.

   

4. Location Transparency. Each location could have multiple managers and staff members, they are responsible for sending in applications at their location. At the same time, they have access to an administrative portal of their own to see how applications submitted by them are progressing. They only have visibility to their own location and no one else's. This will give staff members at each location full visibility into their customer’s application and it makes it easy for them to troubleshoot issues otherwise unknown to the mothership.

   

5. Embedded Financing Widget on Shopify. Our embedded financing widget can be embedded with platforms such as Shopify to make it an easy and no-fuss installation. Check out how Loft is using our embedded widget to check out. Click on “Pay In 4 with Loft”, here.

Successes in BNPL and Merchant Financing  

We’ve worked with large merchants and helped them to launch their own BNPL services. They are all working with local banks to finance their product and services. Which boosts the local economy in untold ways. Here are some reasons why large merchants are building their own financing infrastructure with LendAPI.

1. Speed to Market. LendAPI’s platform is ready to go with all of the location, credit risk, compliance management features ready to go. Merchants can start lending right away on their own balance sheet or work with their location bank to start financing their local customers. 

2. Financing Options and Flexibility. When you are working with large BNPL players, you have to follow their credit underwriting criteria. If your customers don't fit their profile, there’s no way for them to extend credit. When merchants can manage their own credit, they can underwrite as deep as they can. They can also become creative to offer different types of downpayment structures to hedge their risk. These functionalities are not available working with major BNPL players. It’s only possible if you have possession of your own platform with configurability you need to manage your own credit risk.

3. Eliminate Transaction Fees and Merchant Discount Rates. When you are financing on your own balance sheet or work with a local bank that understands your needs. The interest is aligned and these large merchants no longer have to pay transaction fees or merchant discount rates. These savings go right to the bottom line to boost their margins. In today’s economy where retail merchants are getting compressed in a variety of ways, owning your own BNPL platform will give you an immediate return on your investment and will help you grow your business.

4. Own Your Customer. Oftentimes when a large BNPL player establishes a relationship with merchant’s clients, they are getting pulled away from these merchants and being offered all sorts of competitor’s products that destroys the relationship the merchant has established with their clients. Owning your technology, financing, relationship will bring you returning customers and help you to fortify your business.

Freedom to Create

We built our platform to assist merchants to take control of their own financing destiny. If the only thing preventing you from setting up your own financing infrastructure is technology, look no further. Take advantage of LendAPI’s platform and start lending today without spending millions and be beholden to hefty merchant discount rates that eviscerates your margin. 

LendAPI gives you the freedom to create and our killer features such as the ability to build, manage and maintain your own store and affiliate locations will give you the edge you need in today’s economy. Please reach out to us on www.lendapi.com.