On-demand credit could morph into lay-by culture

On-demand credit could morph into lay-by cultureIf anyone has made a purchase through online retailer Takealot recently, you would have noticed that you now have an option to finance the purchase through a loan. I don’t need to tell the readers of my website how I feel about this type of instant credit being available when we are in our “hot” state of wanting to buy something immediately. It can become a recipe for disaster.

This merchant-driven customer finance is now going to be rolled out to physical retail merchants as part of the partnership between Nedbank Point of Sale (POS) devices and SwitchPay, a fintech company that provides solutions in financial technology.

Mpho Sadiki, Executive: Card, Payments, Transactional Acceptance at Nedbank explained that the strategy is not aimed at funding your grocery purchases but to replace the traditional form of ‘hire purchase’ for durable, high-value items such as furniture and car tyres.

As the platform includes multiple banks, including Nedbank, Capitec, Absa, FNB and second-tier lenders, customers would be able to finance their purchases through their own bank. The fintech platform allows you to link directly to your bank which then does an affordability check and provides you with a quote and loan specifically for that item. Sadiki says this would take about 15 minutes to complete. If, however, you want to obtain a loan from a different credit provider other than your own bank, the time frame would be longer as more documents would need to be processed.

While I would advise anyone wanting to make a high-end purchase to save for it, the reality is that there will always be those people who buy now and pay much more, later. Possibly this channel will result in more competitive interest rates than current hire purchase agreements and could possibly be a better option than funding through one’s credit card. A specific loan which is paid off over a specific timeframe is preferable to the revolving credit facility of a credit card which sees people never actually paying off their purchases.

But I am far more excited about the lay-by option which is to become available later this year. Sadiki says there has been a significant increase in the demand for lay-by whereby a customer commits to a payment plan, interest free, and only takes possession of the item when it is paid off. Sadiki says the platform will allow smaller retailers who cannot afford to run the admin of a layby system to now be able to offer what is, in effect, an interest-free funding option.

“Nedbank will oversee all the customer payments, keeping merchants informed of progress so that they can manage their stock as their lay-by customers approach their final payments. The lay-by payment method also offers additional security to the customer should a merchant’s business close while lay-by payments are in progress. In this case, the buyer’s funds are safe and payments already made are paid back to the customer,” explains Sadiki. Once this lay-by option is in place, there will be fewer excuses to sign up for expensive credit.

This article first appeared in City Press.

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