Financial Inclusion Policies Move the Underserved Consumer Mainstream

Forty percent of the population struggles with issues around financial inclusion, including millennials who don’t want to deal with credit, people who are new to the country and individuals who have had credit issues.

Certain providers focused on this underserved segment offer attractive alternatives to payday lenders or pawnshops. For example, Katapult, a lease-to-own company, offers consumers a lease-to-own solution that provides clarity and transparency to the consumer when shopping for the items they need.

“Online, [consumers] can quickly evaluate [our program as well as traditional finance options] versus walking into a payday lender, for example, for a loan, where they’re stuck in that location,” Katapult CEO Orlando Zayas told PYMNTS. “The consumer can quickly [assess their options].”

Immediate Solutions, Plus Education for the Future

To meet the needs of these consumers, providers should offer both an immediate solution and a financial education that will help them in the future, he said. For example, when a single mother of three kids has a refrigerator break down, she needs a replacement right away.

“She’s got that need right then, so the way we look at it is, we help satisfy that need, but we’re clear and transparent, which leads to the education of that consumer on what they can get,” said Zayas, who recently shared his thoughts on financial inclusion in the PYMNTS eBook, “In a Word: 50 Thought Leaders Sum up 2021.”

Read more: 50 Thought Leaders Sum up 2021

Beyond that, Katapult aims to offer financial education, so the customer understands the consumer options that may be available.

Flexibility and Optionality From Lease-to-Own

Lease-to-own payment options have become more attractive in recent years. Today, 79 million American consumers have either used these options or having an interest in using them.

Twenty years ago, consumers going to a lease-to-own store had little choice of product, were limited to what the retailer had in stock and had limited resources to better understand their lease-to-own transaction.

Today, consumers can go online to see what’s available and how the process works. Lease-to-own also offers flexibility by allowing the consumer to return the product at any time during the lease agreement without further obligation other than payments already incurred.

Lease-to-own provides customers the option to obtain products that may not be attainable through other means, Zayas said.

Buy now, pay later (BNPL) is another option for consumers, but it differs from lease-to-own because of certain credit requirements and the inability to return the product at any time without further obligation.

“Looking at those types of products to, again, get the products that these customers need — and being able to stretch it and be flexible on their repayment without charging them fees and trying to create a cycle of debt — I think is where the next wave is going to happen from a financial inclusion perspective,” Zayas said.

An Opportunity to Graduate Customers to Fully Banked

For those who are unbanked or underbanked because they have a credit issue and can’t open a bank account, there’s an opportunity for companies to offer a zero-fee debit card checking account, get them banked and then bring them on to become regular customers.

“I think using that strategy but, again, not trying to charge the customer with unwarranted fees and creating a cycle of debt will get them to graduate, if you will, up the spectrum to banked, and then fully banked and good credit,” Zayas said.

Companies can then teach customers how to use debit cards and checking accounts, and how to avoid overdrafts and high interest rates.

Zayas said that Katapult has found that by being transparent and not charging late fees, it has built a high repeat rate, with 60% of customers coming back to lease with the company again. The company is now looking to offer them other products and further their financial education.

“You want to build that customer, build their confidence in how they manage their finances and how they manage their credit so that they can continue to succeed and get the items that they need, and they don’t run into emergency situations,” Zayas said.