In the shadow of the credit crunch, Generation Millennial - born 1980-1995 - learned a valuable lesson, according to Christer Holloman, CEO of retail finance fintech, Divido.
The retail finance industry, now standing at half a trillion dollars, has traditionally been dominated by a minority of large incumbents Hitachi Capital and Barclays, operating unopposed for 50 years. The changing consumer attitude among Generation Millennial, as well as an explosion of fintechs, is challenging the status quo.
“This is a generation that witnessed the credit crunch,” says Holloman, “and it’s given them an appreciation of financial planning; they don’t trust themselves with an immediate £5000 line of credit.”
While credit is in decline with this generation, the recent phenomenon of the streaming subscription/contract model has pushed pay-by-finance into the mainstream.
It is an emerging market of high monthly income consumers currently underserved with traditional lump-sum purchases. And it spells huge opportunities for fintech to disrupt.
Holloman puts the resurgence of retail finance down to a number of factors: the millennial instant gratification informed by the rise of social media, actual purchase power, and the convergence of technology into every part of finance. Using fintech to provide alternative payments, Divido purports to increase sales by as much as 40% according to its website.
“We spotted a gap within ecommerce and built an instant solution that integrates seamlessly with the checkout process,” says Holloman adding “Sometimes it’s impractical to pay one lump sum with no reason why the cost can’t be split over a fixed number of months.
“Millennials see this straight out of university when they go into unfurnished renting. The furniture retailers would drive more sales if they could offer entire collections for £100 a month.”
The socioeconomic situation that some millennials find themselves in also plays a huge part in the attraction of pay-by-finance.
“Some millennials are HENRYs - High Earner Not Rich Yet,” says Holloman, “They’re good with money and good with credit, but don’t have savings yet.”
Holloman is quick to denounce any grumbling that millennials are simply facing the same financial constraints as past generations. High house prices mean first-time buyers are on average 30 years old (compared with 23 in 1960), while those same prices have informed greater demand in the rental market, extending the period of costly outgoings.
“Older generations may superficially analyze instant gratification as millennials being spoiled, but we’ve also found the pay-by-finance model to be attractive to other generations too,” says Holloman, corroborated by the report from the Resolution Foundation that UK millennials are the second worst off financially (just after Greece).
Holloman further adds: “It’s not just the Divido model tapping into this changing consumer attitude. Volvo has just released a car that can only be paid by finance and Apple is bringing out a fixed monthly rate that includes updated devices when and where they become available.”
Holloman believes that the crux in the change of attitude lies in the changing notion of ownership. Having no permanent property allows millennials to become ‘modern nomads’, enjoying a far more flexible working life, but one that they seek to consolidate with future planning.
“The question becomes, would this section of the consumer market rather a line of credit or a one off fixed-rate finance with a definite end date? They’d feel more comfortable fitting the cost of the finance into their future budgeting.”