The UK retail industry is undergoing a revolution in consumer behavior that has left many merchants facing tough choices in their business models. The two-year global pandemic and its associated restrictions on movement have driven a huge structural shift from in-store to online shopping.

This trend has been further fueled by recent innovations in financial technology, making it easier and more convenient for retail consumers to purchase the items they need. The tremendous pace of change has put pressure on players in the retail and payments space to adapt and provide greater flexibility, and checkout finance has emerged as a key transformation for the industry.

Rob Fernandes is the Chief Product Officer at Deko, the leading retail financial ecosystem. He has 20 years of experience in payments and fintech, leading product strategy across a wide range of businesses and advising many others including Wepay, Vocalink, Nexi, Paysafe, Natwest Tyl, Yoyo Wallet and Tink.

Here, he shares his thoughts on how the new BNPL FinTech is disrupting retail.

Beyond the mainstream BNPL

With the UK's e-commerce market expected to be worth £264 billion by 2024, up 37% from 2020 levels, the importance of checkout finance will only continue to grow. However, the one-size-fits-all approach used by many Buy Now Pay Later (BNPL) brands has its limitations. BNPL's early offerings in the UK increased conversion rates using simple single lender products. However, despite their rapid growth, market demand has changed across sectors and basket sizes and acceptance can now be further optimized for long-term success.

While innovations in the consumer experience have increased the checkout impact on merchants, less attention has been paid to increasing the flexibility and reach of financial products to address different consumers and their buying goals. Nor has enough attention been paid to accelerating the integration of these solutions, expanding the scope of the industry, and offering everything through one platform.

The mainstream BNPL offering has moved beyond the confines of traditional cash and credit cards – UK spending via this method is expected to increase from £9.6 billion in 2020 to £26.4 billion in 2024. Checkout financial products are increasingly becoming the norm; nearly 9.5 million UK consumers already avoid retailers that don't offer BNPL at checkout, and nearly one in five UK adults now use a BNPL service once a month.

The next phase of innovation will include a platform for aggregating short-term BNPL and higher-value and long-term monthly installment financing. They will also operate across a wide range of risk appetites with a group of lenders including prime and quasi-prime underwriters and credit providers covering different industry needs. This will mean fewer abandoned shopping baskets and more sales – helping merchants make the most of their e-commerce capabilities.

Meet all basket sizes

In the UK, some 41% of consumers abandon the transaction during the online checkout process, while 24% abandon shopping in physical stores. A Barclaycard survey also found that, on average, UK shoppers forgo £30 per month of their online shopping basket. Lack of payment options is a major contributor to this, with research showing that nearly 10 million Brits choose not to buy from merchants that don't offer an alternative payment method at checkout.

With the sharp rise in the cost of living due to inflation unlikely to slow down in the near future, many customers are reluctant to spend a lump sum on certain purchases. This will affect not only sales in smaller price ranges such as beauty or fashion, but also businesses offering services such as online education, healthcare or home improvements. Providing a variety of basket-sized financing options for businesses that support the UK economy is essential.

Deko's technology matches customers with lender markets during the purchase process, thereby increasing the approval rate of financial applications at checkout and providing consumers with the best opportunity to obtain the goods or services they need. By ensuring the best match between consumers, merchants and lenders, merchants can achieve an average sales increase of nearly 30%. With its proven plug-in, the platform can also be installed into existing infrastructure in as little as 24 hours, ensuring minimal disruption to merchant business operations while providing the financial tools customers need online and in-store.

The next wave of payment innovation is here

It is clear that the upward trend driven by the convergence of online retail and fintech is accelerating and the payments industry is full of innovation. Checkout Finance represents a permanent shift in how retailers and customers view payments based on choice and flexibility. But the new platform goes further – optimizing customer experience, reach and acceptance at the same time. Checkout Finance aggregation can take this payments evolution to the next level, providing tailored, conversion-centric solutions for retailers and consumers alike.

About the Company: Deko is a multi-product, multi-lender retail finance ecosystem focused on expanding the retail finance channel for lenders, merchants and customers.