Roughly one-quarter of Americans making anywhere from $50,000 to more than $100,000 per year have found themselves cut off from traditional credit due to past histories, but their money still spends.
Giving these solid earners a second chance at credit is turning into a huge retail opportunity.
What’s being discovered is that this massive consumer segment is making the most of buy now, payer later (BNPL) installment credit. Providers and merchants have found that this group not only likes installments but also forms an affinity for brands and merchants offering them.
In a PYMNTS “On the Agenda” discussion, Sezzle CEO Charlie Youakim and Pom Pom at Home Chief Operating Officer Samuel Leiaghat told PYMNTS’ Karen Webster that the more customers try installment payments, the more they like them, setting up this subsection of the sector for growth.
“Buy now, pay later is defining a whole new payment segment,” Youakim said, referring to the second-chance consumers now accessing credit via BNPL in increasing numbers.
“It’s consumers that like some of the benefits of credit, like some of the benefits of debit, but it’s blended in a way that they really love,” he said. “And what we see with this customer base, this second-chance group especially, is that they may have a credit card on file or in their wallet somewhere, but in many cases, they use it only in emergencies.”
Noting that Shopify makes BNPL integration simple and operate much as credit and debit card processing at the store level, Leiaghat said, “We have full trust in buy now, pay later. It’s something that we’ve added to our site and has been shown to work.”
With Pom Pom at Home pricing tending toward the higher end for bedding and décor, making luxury goods available on BNPL terms is proving popular. Indeed, Leiaghat noted that BNPL users are returning to shop in higher numbers.
“Between the regular customer and the buy now, pay later customer, we’re seeing about a 24% higher rate in the difference,” he said. “Percentage-wise, [BNPL delivers] about 9% more returning customers.”
He added that the average installment payment for Pom Pom at Home BNPL is $340, and the company’s beds can range from $1,000 up to $5,000 depending on specs and add-ons.
Get the study: How Buy Now, Pay Later Payments Create New Merchant Opportunities
The Discoverability Bonus
Sezzle stands out among the BNPL brands for its focus on consumers with good incomes, with the ability and capacity to pay and damaged credit. But Youakim said making higher-ticket items available via BNPL is a strategically smart decision.
“As you start to get above $350, you tend to want to have longer-term options that are monthly available,” he said. “When we started to hear retailers tell us about larger ranges of [average order values (AOVs)], that’s what added long-term installments into our portfolio of offerings.”
Sezzle partnered with Ally Lending, personal lending arm of Ally Bank, in the second quarter this year, which Youakim said allows Sezzle to offer longer repayment terms on larger amounts.
Transparency plays a role, with Leiaghat noting that the customer experience of BNPL apps puts shoppers at ease by laying out the transaction in a way that’s easy to understand.
The discoverability aspect of BNPL is a bonus to the second-chance consumer who often knows what they want but lacks the cash on hand or credit to buy it without a credit assist.
“The buy now, pay later apps have done a good job of letting [the consumer] explore other stores and find new businesses that you haven’t heard of before,” he added. “For the online shopper, you’re either scrolling through Instagram and something pops up that looks interesting, but when you go to Sezzle or you go to a buy now, pay later kind of platform, you can see all these different things that may catch your eye that you didn’t necessarily know were out there.”
See also: 4 Things About BNPL
Second-Chance Consumers Are Loyal
Leiaghat and Youakim agreed that giving customers the with ability to pay a second chance at credit generates a level of loyalty that transcends the dollar of any individual transaction.
According to The Second-Chance Consumer: How Buy Now, Pay Later Payments Create New Merchant Opportunities, a PYMNTS and Sezzle collaboration, 73% of this group who have used or would use BNPL agree that the option “makes me more likely to shop at retailers that offer BNPL.”
“They’ve obviously been burned once in some form or fashion with traditional credit, and now they’ve got this form of credit that feels really safe to them,” Youakim told Webster.
Get the study: Study Confirms Love Match Between BNPL and ‘Second-Chance Consumers’
Saying that 15% of Sezzle customers are “no hit, no file,” he added that Sezzle offers “a meritocracy within the product. If you can prove yourself, we’re happy to give you more.”
Beyond the meritocracy of establishing creditworthiness with BNPL brands, merchants benefit from this group because they tend to bring in fewer returns and require less servicing.
Leiaghat said: “We’ve seen a lower return rate with our buy now, pay later, and for us, I think it’s because it’s that first product that they want to see and test. That’s why our returning customer rate is higher. I feel like the buy now, pay later app customer has investigated more into the product and knows what they want.”
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