Ever wonder what happens when the financial markets go into disarray? You don’t have to look back too far to recall the Financial Crisis of 2008-2009. Consumer lending took a double hit. First, lenders tightened up, or raised, FICO requirements of consumers applying for personal loans. Then, consumer’s credit scores dropped due to both income hits and debt limit restrictions. The result – many more declined personal loan applications.
The initial onset of an economic crisis sees lenders scrambling to assess whether their underwriting models are proper for the new economic landscape they find themselves in. Just as in the Financial Crisis, some lenders will immediately tighten (raise) their credit scoring models. Other will cease to lend at all, rather waiting it out to see how their current portfolio performs in order to assess “the damage.” This leaves merchants that rely on consumer financing for its large ticket sales to scramble for alternatives.
Finding and implementing good alternative consumer financing programs is not easily done. In fact, it’s quite disruptive to a business, as now you not only have to educate your staff on the new program but, also your customers. As in the Financial Crisis, there will be new lending options that emerge from our current pandemic crisis. But which ones will be right for your business and how will you go about implementing it? Time is of the essence.
As a small business conducting commerce with consumers, your payment process is just as important as what product or service you have to offer. You could have the best product offering since sliced bread but if consumers can’t pay for it, it won’t matter. So, it’s very important to understand the trend in how consumers conduct commerce and in consumer lending.
The COVID-19 pandemic has caused serious disruption in commerce, not only how it’s offered but how it’s paid for. I’ve seen business customers scrambling to finally get their online presence in place. The businesses that had a strong online presence now are realizing they don’t have a strong enough payment method for online purchases – no way for the consumer to finance the purchase.
The consumer was trending towards a more online experience and the pandemic just accelerated that process. What’s absolutely clear from this pandemic is that more people will be working from home. As such, visits on the way home from work or during a lunch break to a local retail establishment will be significantly reduced. Instead, while working from home, the consumer will pop online to visit the store! A new normal in how we shop will probably exist given the workplace disruption that is going on.
What You Can Do
After the carnage from the Financial Crisis, I was telling myself I hope we don’t see something like that again in my lifetime. Well, eleven years later, here we are again! Yes, this is a different cause to economic disruption but, it’s still the same pain that’s inflicted on business.
To get through this crisis and be better prepared for the next one, a business owner needs to be omni-channel in how they connect with consumers and omni-channel in how they take payment for its goods and services. Being ready to serve customers how they want and need to be served will enable a business to not only survive in turbulent times but thrive.
I’ve seen that movie too in consumer lending – so should you!
~ David Weyher
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