Economic shifts impact point-of-sale finance

You can see embedded finance in our daily lives. Consider emergency car maintenance in which consumers can finance their repair directly through the auto repair shop. Significant expenditures, such as home improvements, are also prime candidates for embedded finance. A homeowner can now secure a reasonable interest rate for a kitchen renovation by partnering with their contractor for financing. Lastly, the opportunities within healthcare are multiplying, with many companies financing dental, eye, and other elective procedures. Merchants are poised to drive sales by offering better and more innovative financing options, and consumers can live in a world where they no longer have to put essential purchases on hold, according to Koalifi.

While the shift toward embedded finance is a net positive for merchants and consumers, rising interest rates and a tightening macroenvironment may tempt participants to misbehave. Point-of-sale companies and those within adjacent industries are shifting their focus to capitalize on the momentum and minimize the risk.

What will enable those within the point-of-sale finance industry to thrive in this brave new world of embedded finance?

Two things come to mind: 

1. A deep understanding of merchants
2. A reliable third-party partner with the essential information

Simply put, those that invest in better data and analytics about partners will better manage fraud and risk, likely resulting in significant financial gains. Accurately assessing risk and capitalizing on opportunities will require the following:

• A thorough process for identifying a merchant’s identity and the principal(s) associated with the business
• An awareness of historical merchant behaviors and actions with peers or similar relationships
• Knowledge of how merchants treat their customers
• An assessment of whether a merchant’s customers are likely to come back

The “must have” list extends beyond the items mentioned above. In most cases, answering these four merchant questions requires more data than a company has available. Merchant identity verification, historical behavioral insights, and sentiment analysis are the key variables used to calculate reputational risk, and they are in short supply without a strong partner.

To learn more about the available data and analytics, click here.