eCommerce is everywhere. Think for a moment, how many people do you know who have never bought or sold anything online? You will probably be able to count them on fingers. According to a report by Business Insider, the U.S. consumers spent nearly $385 billion online in 2016 and expected to increase to $632 billion by 2020.

This, however, will be accompanied by challenges. The competition will rise and attracting new customers will become difficult – a challenge troubling most businesses even today. Businesses will have to find ways to differentiate themselves from competition, attract customers and convert them.

One such way would be to offer financing options to customers (a strategy applicable for most businesses but more relevant for high-ticket purchases). Imagine how difficult it would be for customers to let go of that product when they can BUY NOW and PAY LATER – a strategy utilized and perfected by brick-and-mortar retailers.

What is E-commerce Financing?

As discussed above, e-commerce financing refers to the act of giving customers flexible payment options that they can use to buy a product now and pay for it over a period of time (say monthly installments).

Benefits of E-commerce Financing

Some benefits of e-commerce financing include:

• Increases customer engagement
• Increases conversion
• Increases average order value (AOV)
• Increases customer loyalty

When is the Merchant Paid?

This depends on the financing solutions company and your agreement with them. But typically the merchant gets paid upfront in full.

Who Owns the Credit Risk?

The financing solutions company owns the payment/credit risk.

What is in it for the Financer?

The financing solutions company charges a small fee for their services.

How Does it Work?

• Step 1 – The merchant partners with a financing solutions company and integrates their payment solution with the e-commerce store.
• Step 2 – Customers visit the e-commerce store and select the products they wish to purchase.
• Step 3 – Customers choose the “Buy Now, Pay Later” option during checkout.
• Step 4 – Customers complete the checkout process by sharing required information.
• Step 5 – The merchant gets paid as per the agreement, while the financing company collects payments from the customer.

Popular E-commerce Financing Solutions

• Affirm: A technology-driven financing platform offering flexible payment options.
• Klarna: One of Europe’s fastest-growing payment solution providers working with thousands of merchants.
• AfterPay: Provides simple installment-based financing for e-commerce, mobile, and in-store purchases.
• Pay4Later (Deko): A multi-lender platform optimized to maximize sales for retailers.
• Zibby: A financing solution targeting non-prime and underbanked customers with quick integration.

What to Consider When Choosing a Financing Partner

• Service usability – Ensure the payment process is simple and seamless for customers.
• Payment terms and risk – Understand when and how payments are made.
• Integration capabilities – Ensure APIs or integrations are available for your platform.
• Branding and customization – Check if the financing option can align with your brand.
• Cross-channel availability – Ensure the solution works across web, mobile, and in-store channels.
• Returns management – Clarify how financing works with returned products.
• Customer payment terms – Understand penalties or charges if customers miss payments.
• Customer support – Ensure strong service support for both merchants and customers.

Remember, the customer experience is the key differentiator and financing companies have done their best to simplify financing as much as possible. Unlike a few years back, when customers were redirected to other websites and made to fill long forms, financing today is available at the click of a button.

A number of online merchants have integrated e-commerce financing solutions with their e-commerce store and seen an uplift in their conversion rates (around 25%) and an increase in their average order value (nearly 80%), which is remarkable!