Buy now, pay later (BNPL) offerings have had a very big year, as consumers in the U.S. and around the world have embraced the alternative to traditional store-based credit with unexpected and unprecedented enthusiasm.
But BNPL offers, as presented to customers, still have some limitations for certain consumers, most notably payment terms — dividing the whole purchase into three or four equal payments works better for certain types of buyers than others, and clearly for those essential purchases that are often unplanned.
“If your refrigerator breaks down and you’ve got three kids, you can’t wait until your next paycheck to hopefully buy a new one,” said Katapult CEO Orlando Zayas. “And if you don’t have the credit access to put it on a private-label credit card, you surely aren’t going to take a refrigerator and split it over four payments.”
And that’s if the customer even has that option, he said, noting that while BNPL offerings are often more inclusive than their traditional credit counterparts, they still leave many consumers with non-prime credit behind.
Katapult and its lease-to-own offering for consumers were created to catch those consumers and offer them a more flexible and accessible payment option. It’s not a competitor product to BNPL, but a complementary one, and one that might be more expandable now that Katapult has transitioned to being a publicly-traded company.
Defining The Lease-to-Own Opportunity
Katapult is not a BNPL offering, but a lease-to-own offering and Zayas acknowledged that there are many similarities. The vast majority of Katapult’s consumers are looking to own the product they are leasing, and are looking for a payment solution to enable them to make that purchase.
And just like BNPL, the plan also allows consumers to get access to products upfront and then pay them off in a transparent and predictable manner on the back end, such that the customer knows on the day they initiate the purchase exactly how much they will pay back on each day during the term of the lease.
But Katapult is also distinct in two regards, said Zayas. The first is in the types of purchases it targets: large, durable goods as opposed to clothing, cosmetics and the like, which tend to be the starting point of a lot of BNPL roadmaps. Second, the firm is not married to the installment model that tends to define the space. Katapult can more effectively build its lease-to-own offers to meet consumers’ needs. For example, said Zayas, if consumers design their lease plan for payoff within 90 days, the customer is only paying 5 percent in addition to the cash price of the product and taxes.
And the company’s data demonstrates that its offering works for a growing share of consumers.
“We see a really high repeat rate; I think over 45 percent of customers have come back,” Zayas said. “On average, there are 1.9 leases per customer, and that is continuing to grow as we expand our retailer base.” The company’s strength, he said, lies in the ability to get customers things they need fairly immediately, from appliances to tires.
Collaborating With BNPL
And so, Zayas noted, the lease-to-own option isn’t a competitor to BNPL offerings, but is more of a complement to it. When a consumer applies for financing with Affirm, for example, and Affirm can’t approve the offer, the consumer “waterfalls” directly to Katapult automatically.
“We’ve had to learn how to tailor our models to better capture that data, make a determination on that consumer within five seconds and do it the right way so we [mitigate risk],” Zayas said. That’s a tall order, especially with the limited data the firm has to render such decisions, but it’s also a big opportunity, because BNPL market leaders are aware that “they aren’t addressing the non-prime consumer very well,” he noted.
Now that Katapult is a public company, it has officially started the “next phase of our evolution,” Zayas said. It’s one that will let the firm forge new partnerships and will open up capital markets to provide access to cheaper money, which in turn could allow the firm to develop new products for its non-prime consumers.
Because the market for under-served consumers is wide, said Zayas, and the opportunities to collaborate to reach them are multiplying. “There are a lot of good stories about where the customer doesn’t have credit, then they get access to credit and a lot is turned around,” he noted. “And we’re giving them access to get those essential goods that they need for everyday life. I think that’s really what’s changed — it’s just a click away, and it’s easy, fast, clear and transparent.”
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