A credit refusal does lasting damage to online retailers’ customer relations, ethical finance company shows

A failed online credit application means more to many consumers than missing out on a new sofa. A decline can have a major impact on them, and may even affect their mental health as well as their future relationship with that retailer. In fact, over half of customers (54%) say that if they were rejected for credit they would be upset or very upset by the experience. For 8% of people such a rejection would affect their mental health, a figure that rises to 16% for those previously rejected for credit.

These are among the top findings from a new online YouGov survey of UK consumer attitudes towards online credit offered by retailers: 

  • 54% of respondents would feel upset or very upset if rejected for credit by an online retailer
  • 8% said it would affect their mental health. That figure rose to 18% among people who had previously been rejected for credit.
  • 62% of respondents were likely or very likely to consider a competitive retailer for a similarly priced item if they were rejected for credit by the original retailer’s finance provider.
  • Among respondents who had been previously rejected, 70% said they were likely or very likely to consider a competitor for a similar purchase.
  • 37% of respondents would change their attitude towards a retailer if rejected for credit in that way. And a further 23% of respondents would not go back to that retailer at all if their finance application was rejected in that way

Dr Heather Kappes, Associate Professorial Lecturer in the Department of Management at the London School of Economics and Political Science, studies consumer behaviour and marketing.

She said: “Because people view brands as relationship partners, companies can’t afford to drive customers into competitors’ arms. However, in an age of easy credit, there can be tension between making customers happy and being responsible. There is clear value for retailers in partnering with a financing company that helps them walk this fine line. These partnerships can contribute to customer-retailer relationships that become long-term commitments rather than flings.”

Robert Schuijff, CEO at etika, an ethical finance provider that sponsored the survey, said: “Retailers want to help potential customers get the products they want, with finance that they can manage. But too often the online application process is binary – accept or decline. The hard credit search leaves a mark on that applicant’s credit history but what’s worse, this YouGov research shows that a decline can have a huge impact on a customer’s willingness to engage with the retailer for that particular sale – or ever again.

“By contrast, when retailers tell customers what their credit budget is following a soft credit check, it saves a large number of customers from a hard credit decline. The improved customer journey reduces drop-off, which increases sales conversion, and the reduction in hard credit checks means less damage to customers’ credit histories. In fact, helping customers to build a positive credit history boosts their financial health – 92% of etika customers sampled had an improved credit score after utilising etika’s finance that fits! Furthermore, we don’t have late fees or any hidden costs or conditions, all of which is central to our ethical approach.”

etika operates in the high-ticket, long-term end of the UK retail market, where many potential customers unfortunately fail to get the finance they need. The company has a unique combination of people, technology and ethical approach that brings together product, customer and finance.By ensuring that its initial soft search does not affect a customer’s credit history, with one retailer etika was able to cut the number of hard-search rejections by 88%.  The company is already working with a range of leading UK companies including DFS and Vitality.Other highlights from the research:

  • 53% of respondents did not know that applying for finance for a purchase of over £500 could affect their credit score.
  • The two biggest barriers to applying for 0% interest credit (purchases of £500+) were the assumption of hidden fees (15%) and concerns around the effect on credit scores (12%).
  • Of the respondents previously rejected for finance, fear of the impact on their credit score was the joint-top barrier: 21% noted fear of the impact on their credit score as a main barrier and 21% cited fear of being rejected.
  • Imagining a scenario where they were rejected for online finance, 6% of respondents who had been previously rejected would go to a high-interest lender to complete the purchase. 

NB: Of all the survey respondents, 14% had previously applied for credit to fund an online purchase and had been rejected.