March 30, 2016
The Credit Toolkit
by Peter Nicholson | Partner
As the final ‘landing slot’ period draws to a close, it’s a good time to reflect on the impact the FCA has had on consumer credit within the home improvement industry…
When the FCA took over responsibility for consumer credit in 2014, concerns were expressed by our retail partners about the likely impact regulatory compliance would have on their businesses, and there was some expectation that smaller firms would cease to offer finance once their interim permission had lapsed.
However, in our position as the UK’s leading independent business-to-business introducer, this hasn’t been our experience and the overwhelming majority of our home improvement retailers have successfully submitted their applications for full or limited permission to carryout credit broking activities.
We know from FCA reports that well over 50% of businesses that originally held a consumer credit licence have not gone on to apply for authorisation, conversely less than 2% of our retailers have let their IP lapse and this is because the benefits of offering credit far outweighed the ‘pain’ of getting authorised. Added to this, we have had a 100% success rate in assisting clients through the process with only a handful remaining to be confirmed as authorised.
While this success has been due in part to the support we provided ― in 2013 we appointed an in-house consultant to assist with the technical aspects of authorisation and to guide retailers through the process and application ― it’s also a reflection of the important role finance has come to play within the sector.
The importance of credit to the home improvement market
There’s no doubt that offering credit is crucial for attracting those customers who would otherwise be priced out of making purchases, but the appeal of finance isn’t restricted to just those with limited savings. Customers of all demographic groups, attracted by very low interest rates and deferred payment periods, are looking to make purchases on finance. Recent research by Hitachi Capital Consumer Finance found 83% of consumers said that retailers offering finance heavily influenced their decision to purchase.
Much of the success of consumer credit is based around its convenience. It enables people to make their purchase immediately without waiting until they have the cash available. Moreover, it doesn’t just let people buy the basics of what they need, it means they can buy more (a full house of new windows not just the front) or buy better (a composite door rather than a standard UPVc door) and this gives retailers a greater opportunity to upsell.
There’s no question that proactively offering finance at the point of sale encourages customers to finalise their purchase and increase order values. Any retailers without a credit offering are unlikely to be maximising sales opportunities. This is important, because many home improvement businesses have struggled to maintain growth in a highly competitive, post-recession market. However we’ve found that companies offering finance are outperforming the market ― credit has proven to be a crucial marketing tool that enables them to differentiate themselves from the competition and grow their businesses.
The impact & benefit of the FCA
From the outset, we at CCS believed that the FCA regulation would be positive for customers and for the industry. It has put the onus on businesses to ensure that they have robust processes in place and that they look to ensure that all customers are treated fairly during every sales meeting.
We also believe that the FCA’s role will influence the type credit on offer within our sector, and we see this as a positive. We have long been advocates of promotional finance as opposed to high-rate, commission earning finance. For us, products such as interest free, buy now-pay later, and low rate credit are clearly fairer for customers, as well as proven to be more effective sales tools.
Regulation should also mean clearer communication about credit products and that will help customers to make more informed choices about the finance options presented to them. That’s why we pioneered our ‘eChoices of Funding’ approach – a simple ‘app’ that sets out all the payment options, including cash payments, together with the key financial information. It reassures customers that there’s one price regardless of how they pay, and it allows them to make a quick and easy direct comparison between the payment methods, before choosing the right option for them.
‘Choices of Funding’ makes it easier for our retailers’ sales teams, it allows them to simply walk through the various payment options in a structured and informed manner. The app also provides documented evidence that every customer has been made aware of every available option.
Over the last 24 months we’ve proven that life under the FCA need not restrict retailers’ ability to offer finance. Both 2014 and 2015 were record years for CCS, we managed almost £1bn in finance approvals, and the start to 2016 shows no sign of slowing down.
It’s our belief that if you have business that puts the interests of the customer first then you have nothing to fear from the FCA and much to gain as a credit broker within the home improvement sector.
About Consumer Credit Solutions
CCS specialise in providing credit facilities to the Home Improvement Sector, and work in partnership with leading ‘blue-chip’ lenders. As part of its credit management service, CCS manage the relationship between retailers and lenders, and provides industry expertise, business advice as well as ongoing training for sales teams.