The reason most POS companies have not been able to incorporate the value-added service of consumer finance is that the loan usually comes from a third-party lender or bank. Square provides its own financing to consumers, but most POS companies don’t have the funds to do the same.
The integration of even one third-party lender into the POS is a very complex process. Using more than one lender is crucial for the retailer so that a higher proportion of consumer loans are approved, but integrating more than one lender is nearly impossible using traditional channels of integration with the POS.
The entire process of risk, approval, and underwriting is complicated and cannot be done by POS companies alone - they need lenders who specialize in these fields and can be seamlessly integrated into the POS. Retailers face the same dilemma. After investing in the POS system itself, it’s difficult for retailers to incorporate POS installment loan solutions, making it even more vital that POS systems come with integral financing options.
For this reason, the market is open for card issuers, banks and fintech companies to jump into the gap and offer POS financing, even though they may not be an integral part of the POS system. The best approach is for POS companies to work with an installment loan provider that offers a hub to connect various lenders to the retailer, who can seamlessly offer their loan programs to consumers at checkout.
This can be done much like Square, by utilizing a unique digital card upon loan approval. The card number can go directly into the payment terminal, ensuring zero integration is required between the POS system and the lender. White-labeling loan applications to look like an extension of the retailer's checkout point can complete the offering, giving POS companies the opportunity to reclaim their central role.
The goal is cooperation between the POS company and the fintech solution to offer a seamless experience for both the retailer and the customer, providing a service that matches Square's level.
