BNPL Extends Credit Lifeline For Consumers In The Digital Economy

The rivalries in the financial services business are legendary. Companies and their chief executives back in the day made no bones about their competitive obsessions and their desire to be on top of the heap. There was Citi vs Chase; Sandy Weill vs. Jamie Dimon. Or there was Goldman Sachs vs. Morgan Stanley; UBS vs. Credit Suisse. And although they’re adjacent to the financial services business, it’s hard to discount Microsoft vs. Apple and even the current one-up battle between Apple and Facebook.

Competition is a way of life in payments. In fact, there’s a temptation to treat it a bit like a horse race — where every firm’s advantage or leap forward is interpreted as a new obstacle for their competitors. The more competitive the space, the more the horse race framing tends to dominate.

But maybe that winner-take-all spirit isn’t as important as it used to be. Take, for example, the buy now, pay later space. It is, of late, a very competitive space. It has dedicated new-breed companies like Klarna and Afterpay. It has innovators like PayPal looking to make a name in the space. Not to mention the old guard like American Express and Visa. But as BNPL firm Sezzle’s CEO Charlie Youakim told PYMNTS Karen Webster in a recent conversation on the ConnectedEconomy™, the idea that there always has to be a definite winner standing astride a field of losers might not actually be the best framing for the situation.

“One tip, I always give business leaders, especially like newer entrepreneurs is that it’s not a zero-sum game,” Youakim said. “If you play it like a zero-sum game, you’re going to create a lot of friction for yourself along the way. It’s always a one-plus-one-equals-three activity. And it’s, the more you can do that, the more you’re creating, expanding the pie for everyone, even competitors.”

Ripe For Expansion

BNPL has been a rapidly expanding platform over the past year for connecting consumers who might be credit-card averse, or younger consumers uncomfortable with the general concept of debt. BNPL has also provided a connection point between merchants and consumers looking for an alternative to credit cards or who have credit scores too low to make them viable. As a recent report from PYMNTS showed, 32 percent of consumers who reported struggling to pay typical monthly expenses used BNPL solutions for their Black Friday transactions in November 2020. Other research has shown that 48 percent of consumers who prefer to use some form of credit at the point of sale (POS) — including BNPL — claimed they would not shop with merchants that did not support it.

The way Youakim sees it, consumers, don’t need BNPL, but they prefer it. BNPL is, at its core, a more trusted and transparent offering to the customer and one they are increasingly seeking out and proving determinative in their shopping decisions. This means, conversely, that it is becoming something that merchants need to have.

“If you’re a merchant and you’re competing against someone else in your space and they have our product on their website, your competitor is going to have an advantage,” he said. “And so I think that’s what makes it a must-have for the merchants. And the advantage is driven by the fact that consumers do like this form of credit. And we all know when given the option of waiting six weeks, what happens is the customer might just forget about it or find a different product somewhere else, and that leads to a lost sale.”

Mobile’s Front Door

Sezzle does serve a large segment of consumers who would find accessing other forms of credit something of a challenge. More than 50 percent of its consumers have FICO scores lower than 600 or no score at all. These consumers are highly mobile — 90 percent of Sezzle translation come in via mobile — and are better-enabled participants in the connected to the economy.

This means the question going forward for Sezzle is how does it build more of those connection points and make them count. That has included the introduction of new products like Sezzle Up which is designed to help consumers improve their credit scores.  It is essentially the same product as its core installment loan, though this one is reported to the credit agencies. Sezzle is also, in partnership with Ally Bank,  looking to launch a light, longer-term six installment product, to allow it to better serve merchants selling higher-priced goods from whom consumers could need a slightly longer lending period. For merchants, he said, they’ve developed a new tool called Sezzle Spend which will allow merchants to essentially discount their products, but in a way that is “hidden though Sezzle.”

The goal at Sezzle hasn’t changed, even as the company has expanded from its core BNPL offering into being a commerce ecosystem that gives customers a better way to find new merchants and manage their payments when it comes time to checkout. The goal remains as focused as it ever has been around giving consumers better tools with which to manage their financial lives.

“People always ask us, aren’t you creating a chance that [customers] might graduate out of your product and go on to a credit card,” Youakim said. “And my viewpoint is, I don’t care. We’re going to try to win them over so they stay with us because they can use the credit card within our system. But I think the right approach to businesses keeps on doing right by your stakeholders and good things will happen because they will trust you.”