Welcome readers. I came across something interesting last weekend that I had not experienced directly myself that I found to be illuminating. I found myself applying for credit, albeit not needed, to obtain a 0% financing rate on a household project. In doing so, I found a world that I had not witnessed firsthand before and asked myself is there an opportunity with supply chain finance for consumer cards?
To set the story correctly: My wife and I had a number of projects planned around the house and were interested in a number of electrical items that we had put off for some time. These totaled ~$5,000 and we were intrigued by a 0% rate on an electrician’s website.
When we let the electrician know that we would take advantage of this offer, the person responding (actually the sales agent for this credit product) informed us that we would need to go through the company’s website to approve the job and they could handle the transaction.
We called the company, approved the job, and were asked for my card number. I told them I was looking to take advantage of their 0% offer. I was told that they could not take the transaction then and that I would need to apply for a card on their online site first. (Problem in the order process, as they should not let me go while I am ordering — I might abandon.)
I went online to find that the application is an online order form for a Wells Fargo Home Projects credit card. I immediately looked up more information about this card and read the term sheet.
The term sheet is unclear as to what the APR and offer really is. It is one of the multiple possibilities and it is up to the contractor to express what is being offered — in this case 0%, but in others it might be a teaser rate for some period. (This creates confusion for the applicant, who needs to trace further to know what the terms really are. More friction. But the offer is good, so I continued, now fully aware that the rate will jump to 28%+ dating back to the purchase date if a payment is missed. At this point, I would have abandoned the application for my initial purpose of 0% financing because it was not quick and easy, but now, as a market researcher in this space, my interest was piqued.)
A quick search online reveals:
- The financing terms are paid for by at least one major home improvement supplier (I can only guess Home Depot or Lowe’s).
- Some innocuous complaints about cards that were ratcheted down to “Projects-Flooring” or “Projects-Roofing” goods and services.
- Transactions must be tagged at the time of purchase as “Projects” to qualify for the program.
None of these sounded like showstoppers, but they did raise concern about whether my contractor would process this correctly to keep me qualified for the transaction.
I completed the online app, was approved, and was given a card number with a credit line and a message saying the physical card would be issued in two weeks. (It seems that virtual card fulfillment should be an option these days, especially given the nature of this card, which targets financing of larger home improvement transactions through contractors.)
I called the contractor back, committed to the transaction and then found that the agent did not know how to process the card without the expiration date (a training issue at the contractor). They asked to call me back. Thirty minutes later and the callback came to accept the transaction without an expiration date. I still do not know if they ran it or are just willing to proceed with that card indicated as on file for now. (I could find out, of course, but I think it is interesting that this is the level of information relayed to the consumer.)
So, why is this interesting? Let me explain. I have inserted some hypotheticals below to make a point.
In this transaction you have:
- A contractor selling a financing product for Wells Fargo
- Wells Fargo accepting a rate that is paid for by a distributor
- A distributor willing to structure products (in some cases) down to specific product categories
- (speculation) Categories that benefit certain suppliers/manufacturers
- These manufacturers likely will need either to pay the distributor to be part of the program or to offset their pricing or the financing rates in some way as they are receiving the benefit of the financing (a positive) or they have to pay to play (a negative).
- This, in turn, affects their rates for their goods and services, which is reflected to end users in terms of pricing (which means that ultimately the consumer pays for the financing through a value chain where there are many possible leaks).
The benefits of the transactions are balanced: The consumer gets financing. The Distributor increases orders by having financing options. Manufacturers pay and hand off pricing.
And what we see is a supplier ecosystem that is fully developed and realized at the distributor level.
My question is, What opportunities does this afford the distributor after this network of relationships is in place? E-Commerce environments allow for the handling of complex relationships and present opportunities for alternative lending options. We see card issuers competing in this space and recognize that, in the end, it is the best customer experience that will determine which lender/product/financing method will win consumer adoption over time in this category.
