Retailers face a number of uncertainties heading into the 2021 holiday shopping season. The Delta variant of Covid-19, ongoing supply chain disruptions, and rising inflation are just a few of the variables that will impact consumers’ shopping choices. But one thing’s for certain: whether they’re shopping online or in-stores, most consumers will rely on their smartphones as their primary connection to retailers.
This presents an enormous opportunity for merchants to finally break down the long-standing financial barriers that have separated them from the tens of millions of cash- and credit-constrained consumers. While these consumers may not have access to a full spectrum of financial services products, a significant majority do own smartphones. Retailers should not underestimate the potential growth opportunity this massive segment presents to them, as these consumers share the same needs for durable goods as any American.
A mobile-first world
The never-ending quest to attract new customers and convert them into loyal repeat customers drives every retailer’s growth strategy. There may be no greater untapped resource for new customers than the 66 million American adults (more than one in five) the FDIC classifies as unbanked or underbanked because banking services are insufficient to meet their financial service needs. 5.4% of Americans who live in an unbanked household have no checking or savings account, or access to credit cards. Another 16% whom the FDIC considers underbanked may have a bank account but still rely on other costly financial services such as check-cashing loans, which place further strain on an already constrained budget.
Yet, while many Americans are considered unbanked or underbanked, the Pew Research Center reports that 85% of all American adults own a smartphone. That number dips only slightly to 76% for those living in households earning less than $30,000. And here’s one more statistic to consider: By 2025, mobile commerce (m-commerce) will likely generate more than 10% of all U.S. retail sales – a growth of almost seven percentage points since 2018.
Put simply, American consumers first reach for their mobile devices instead of PCs or laptops to browse retailers’ e-commerce sites, conduct research and make purchases whether they’re shopping remotely or walking the aisles of a brick-and-mortar location.
That includes the 66 million cash- and credit-constrained Americans who, like all consumers, require household, electronic, and everyday goods for their daily lives to operate smoothly and their children to attend school. But too often, the convenience of using their mobile devices to search for the products they need turns into an obstacle actually making a purchase.
Cutting through the red tape
After these consumers add items to an online shopping cart, they typically discover that retailers’ e-commerce sites and mobile apps only accept transactions linked to bank debit cards and credit cards. Consumers without access to these limited payment options have two unappealing options: initiate complicated, time-consuming credit applications, or cancel the pending purchase. The retailer likely loses those potential customers forever.
Fortunately for merchants preparing for the 2021 holiday shopping season and beyond, financial technology solutions developers are introducing lease-to-own (LTO), buy now pay later (BNPL) and other mobile-based financial solutions designed specifically for the unbanked and underbanked market. Integrating these technologies on their back ends will enable retailers to foster financial inclusion for millions of underserved consumers to quickly increase sales volumes and eliminate transaction risk.
Managing risk while reaching new customers
The challenge for retailers is as much a risk management issue as it is a technical one. The retail and financial services industries need to work together to develop creative solutions that remove the financial barriers keeping 66 million Americans from participating in the post-pandemic recovery, while not requiring retailers or consumers to assume more risk.
The focus needs to be on leveraging the combination of smartphones, payment networks, and AI-based decision making to empower consumers and improve their quality of life without risking their credit.
This includes integrating digital and peer-to-peer payment services into POS systems at brick-and-mortar locations as the selection of digital payment options for retailers to consider accepting is growing, including PayPal, Amazon Pay, Google Pay Send, and Stripe.
Ultimately, the goal should be to build and implement payments solutions that give underserved consumers access to the products they want and need while simultaneously reducing transaction risk to the retailers so they can grow their customer bases.
