As the shift from paper to digital has accelerated the transformation of many a legacy business with aging tech, CEO Woodrow Levin of Extend says it’s important to add extended warranties to that list. Merchants used to have a tiny conversion rate when offering customers extended warranties by paper, and that only got a little better when they switched to POS systems.
Even online merchants who offer customers extended warranties at the time of sale traditionally see about a 4 percent or 5 percent conversion rate. But Levin, whose extended warranty startup just raised $40 million from PayPal and other backers, told Karen Webster in a recent conversation that his firm has managed to boost that as much as sixfold.
“[Retailers] are seeing double-digit higher conversion rates when an extended warranty is shown – not on the extended warranty, but conversion rates on the product itself,” Levin said. “The fact that a third party will stand behind the product gives customers greater peace of mind to purchase the product.”
He said the 100+ merchants using Extend’s platform typically see 12 percent to 14 percent conversion rates, with some even enjoying rates as high as 30 percent. Such numbers have impressed PayPal and other investors, who joined a $40 million Series B funding round that Extend announced on Thursday (Oct. 15).
“We are super-energized to have one of the leaders in the payment space – PayPal – as a major investor,” Levin told Webster.
He said PayPal had been looking at extended warranties for some time. “We think that down the road, it would be interesting if an extended warranty was part of the checkout flow,” he added. “I think that we [and PayPal] are interested to see where the relationship can go.”
Meritech Capital led the funding round, with participation from existing investors Great Point Ventures and Shah Capital Partners. Extend also announced on Thursday new partnerships with Peloton, iRobot, Harman/JBL, Advance Auto Parts and other brands to offer their customers extended warranties.
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Levin said consumer interest in the sector is growing because extended warranties have expanded their historic base of conservative retirees to also include unemployed or underemployed millennials who are risk-averse. PYMNTS’ Retail Product Insurance Study found just such growing interest in extended warranties among some 2,700 online shoppers surveyed.
That’s a big change for an industry that Levin said hadn’t changed much in a half-century. But he noted that integrating APIs into the online point of sale is boosting conversions on extended warranties. He contends that should make extended warranties part of the “next-generation eCommerce stack,” which also includes such things as point-of-sale consumer financing.
Levin added that extended warranties are seeing accelerated adoption, not just due to the potential to increase retail sales, but also the profit potential for merchants.
“When an extended warranty does attach [to a purchase], this is just 100 percent bottom-line profit,” he said. “There's no cost of goods sold associated with it. Extend and our underwriting partners are taking on all the risk.”
However, Levin said companies like his must provide a product to consumers that is transparent, reliable and removes all of the “gotchas” that have historically bogged down warranty claims.
For example, Extend doesn’t require consumers to keep a copy of their sales receipts. Instead, the company can look up a receipt using a phone number or email address, and its claims bot (known as “Kaley”) handles 98 percent of claims in under 45 seconds.
Extend also serves as a fully licensed administrator and approves or denies claims itself, aggregating data and reporting back to clients who can use the information for R&D purposes.
Next Up: Bundles, Subscriptions And Vertical Expansion
With consumer and industry interest growing, Extend is looking to expand.
Levin said possible growth areas include bundled pricing options, as well as subscription-model warranties. For instance, someone might get an extended warranty on something like a Peloton exercise bike, not by paying a one-time fee, but through a small fee added onto a monthly subscription plan for the Peloton service.
In addition, Levin said Extend is also going vertical by managing manufacturer's warranty programs and even catalog-specific parts failures, which can enable companies to do supplier clawbacks.
Extend’s data analysis can also track which servicers repair broken items correctly the first time, as well as specific customer insights as to why a particular product might have malfunctioned.
The extended warranty business might not be new, but Levin said that what his firm is doing has never been done before. “Traditionally, OEMs were blind to what happens after the manufacturer warranty period, [which was] typically one year,” he noted.
And despite PayPal’s interest, Levin remains focused on building a standalone company that is 100 percent aligned with merchant partners and becomes a well-known consumer brand.
“We're filling a really big gap for a modern protection plan that is easy for merchants to integrate and is fair for customers,” he said. “The individual has suffered for too long with a protection plan that's full of these ‘gotchas’ and all of these hurdles to file claims.”