Catch Parlays Merchant Interchange Savings Into Cashback for Consumers

For consumers who can get credit, they’re racking up a ton of it.

The most recent quarterly report from the Federal Reserve on household debt indicates that credit card balances have exceeded $1 trillion. The data reveals a $45 billion uptick in balances in the second quarter of 2023 from the prior quarter.

Read more: Credit Card Balances Pass $1 Trillion as Consumers Rely on Payment Method

Meanwhile, the rising popularity of buy now, pay later (BNPL) solutions is evident. PYMNTS data reveals that 1 in 4 Gen Z shoppers insists on having BNPL options before making a purchase. This approach is also fosters increased consumer buying and borrowing behavior.

Read more: Nearly One in Four Gen Z Shoppers Won’t Buy If BNPL Not Offered

So, how do shoppers purchase the products they love, without accumulating debt but still getting perks like they would with a premium credit card?

In an interview with PYMNTS, former Affirm and Google employees and co-founders of Catch, Nico Perdomo and Denia Ebersole, discuss how they’re using payments as a channel to create a loyalty program that provides customers the flexibility to shop while aiding retailers in avoiding credit processing fees.

“Our average transaction size is $100. And our sweet spot for us is typically between that $50 and $250 mark. And the categories that work best for us are apparel and beauty because there’s a natural replenishment cycle,” Perdomo said.

The statement is intriguing since high-value items usually mean greater profit margins.

Why Catch Focuses on Low-Value Items

In contrast to products such as Peloton, which generally entail a cost of around $3,000 and ideally see only one-time purchases, Perdomo said Catch has opted to emphasize low-value essentials or consumables. This approach enables Catch’s customers to concentrate on a steady flow of recurring transactions.

Considering this perspective, retailers have the opportunity to use frequently replenished items to cultivate steady interactions with customers. Through these regular engagements, loyalty can be nurtured and has the potential to extend beyond lower-value items.

Beyond Reoccurring Purchases

But while reoccurring purchases are what brings in the cash flow, Perdomo said Catch’s intentions go beyond that.

“We don’t want to have a business model that encourages people to go into debt. I think that’s enough of an issue today,” he said. “We want to push the other direction and maybe we make a small impact there.”

This follows the sentiment that younger generations often fear debt. This can be attributed to a combination of economic, cultural and personal factors that have shaped their perspectives on financial security and well-being.

“There are multiple levers to drive loyalty and retention rewards. The one that we help merchants pull, not to say that we shouldn’t be pulling on other ones, revolves around how we assist merchants in optimizing the reward,” Ebersole said.

The reward system they’ve devised is built upon tangibility for consumers. In contrast to traditional loyalty point programs that necessitate conversion, Catch rewards are earned in dollars rather than points.

By providing value and enabling perpetual earnings, Catch ensures that customer engagement journey begins promptly, circumventing the problem of stagnation typically encountered in loyalty strategies between the first and fifth purchase. Rather than relying solely on broad promotions, which can be less efficient, they use rewards strategically to guide customers through this critical phase of the customer journey.

For example, the beauty brand Ouai collaborated with Catch to stimulate repeat purchases within a span of 90 days. The collaboration resulted in a 38% upsurge in customers returning for subsequent transactions and a 3.3x return on investment from Catch’s network acquisition efforts.

In another instance, apparel brand PacSun reported a 92% surge in customers returning for subsequent purchases and an 88% rise in customer lifetime revenue. Additionally, PacSun observed that 55% of its customers made a second purchase.

“Catch has driven high repeat rates for PacSun, and collaborated on marketing campaigns that not only fit within our existing marketing calendar but also appeal to our Gen Z and millennial user base,” said Michael Relich, Co-CEO of PacSun, in a statement.

How Catch Makes Money

Catch promises “No debt. No fees. Just rewards.” To achieve this, the company allows customers to make purchases directly from their bank accounts or debit cards, earning a minimum of 5% in store credit with each transaction.

Through this approach, Catch customers circumvent the credit card processing fees typically paid by retailers. These savings are passed on to Catch customers as store credit, encouraging repeat shopping.

Catch imposes a small fee on brands only when customers use their accrued store credit, earned through Catch, for redemption during subsequent transactions.

To incentivize repeat purchases, the Catch team adopts a proactive strategy that goes beyond simply enlisting retailers and waiting for customers to opt for Catch payments during checkout.

Having the capability to track both the value of ordered items and the actual purchases made, Ebersole pointed out that the Catch team collaborates with its partners to ensure the promotion of appropriate products coupled with precise messaging tailored to their customer base.

Perdomo said the company will work with retailers to create personalized offers for customers that can ultimately help offload excess inventory.

“The fact that we’re in the flow of funds means that we know exactly what that customer is buying, but also how much they’re spending, and we can allow the retailer to basically customize the offer,” Perdomo said.

Adding to that, Ebersole said the approach aims to tailor interactions for various consumer segments, with the goal of steering them through the merchant’s sales funnel. Whether it’s encouraging the acquisition of new products, promoting increased purchases of the same SKU, or driving diversification in SKU choices, the intent is to cultivate a multifaceted customer journey that aligns with the merchant’s objectives. This involves comparing the data specific to the partners’ customer base with the broader insights derived from their entire customer demographic.