The field of buy now, pay later (BNPL) offerings has become crowded over the last year with new products, big partnerships and massive funding rounds. The race is on to stake a dominant claim in the newly exploding market.
How does a firm stand out among the clamoring crowd growing and becoming more competitive almost by the day? That was Karen Webster’s question for Sezzle CEO Charlie Youakim in a recent conversation. Not that staying competitive has been a problem for Sezzle. In 2020 earnings results, underlying merchant sales (UMS) were up 250.8 percent while total income increased 272.1 percent year over year. And 2021 is also looking strong so far, with UMS up 65 percent above its 2020 average. As of January, more than 29,000 merchants accepted Sezzle. What makes Sezzle different from its competitors is simple: It embraces its role as a lender.
That’s a massive differentiator in a field where most competitors go out of their way to declare themselves anti-credit or treat credit like it’s a four-letter word, Youakim said. That position doesn’t align with how consumers view credit or how they want to relate to it.
“Our viewpoint is that a lot of young people in the U.S. want to build their credit score,” he said. “They understand credit. They want to get it to the next level. We want to help them do it.”
The goal shouldn’t be to divorce young consumers who prefer BNPL products from the world of mainstream credit, Youakim said. Credit is a necessary tool in a consumer’s future life, and the goal should be to make consumers better informed about its use in the future. It’s what allows Sezzle to enter into partnerships like the one it signed with Ally last fall. Because BNPL doesn’t have to be a competitor to traditional credit offered by issuers, it can complement it.
Sezzle doesn’t view itself as the end of a consumer’s credit journey but as a starting point where consumers can get their “first shot” at managing a credit product by making itself an easy onramp for consumers to move their way into the system. Sezzle can accept 88 percent of the consumers who apply. Once it can establish the applicant isn’t a fraudster, it is more or less always able to approve them for a small amount, usually around $200.
Youakim noted that users could build out a Sezzle score and credit score over time from that starting point. These are credit products that mainstream financial service providers like banks want to put into consumers’ hands.
“Ally is the first example of that, but we’re talking to the big retailers out there and showing them that we can work with the financial institution that they have a contract with, and we can plug them in,” he said. “We don’t have to conflict. We can work together.”
Building A Better Credit Tool
The idea that younger consumers don’t want to use credit is a misconception. Young people are interested in entering the market, a fact demonstrated by PYMNTS’ data in late 2020. Older and younger millennials are not only likely to have credit cards, they are the generation most likely to have them, with 89.2 percent of millennials having them, as do 88.8 percent of bridge millennials. If younger consumers don’t have cards, Youakim noted, it’s likely they have been blocked on the path by lack of credit history or by a low score.
That, he said, is the consumer group Sezzle was created to serve.
“Among our customers, 53 percent have a FICO score of 600 or below,” he said. “That group is not going to get accepted by traditional credit standards.”
That low-score/no-score customer is also likely to be scared away from credit products by an application experience that goes badly and ends in a rejection. Young consumers likely won’t be back to apply anytime soon, meaning the retailer is missing out on the advantages of bringing them in.
Sezzle can bring that consumer into the system, monitor that consumer’s credit and Sezzle score over time, and lead that consumer back to the possibility of a private label card when the consumer is positioned to be accepted. Moreover, he said, the platform is designed to make the customer’s credit profile improve over time because of a layer of guardrails with their credit products to protect the customer base segments that have multiple credit lines open at once.
By offering their customers clear visibility of their upcoming payment volume over the next two, four and six weeks, Youakim noted, Sezzle gives them an understanding of how much they are spending in real terms.
Recreating Credit As A Public Service
Being credit-product-positive isn’t the only thing that differentiates Sezzle, Youakim noted. It is also a public benefit corporation on its way to B Corp status. That strong environmental, social and governance (ESG) has been a part of Sezzle since its founding, promoting the idea that it can run its firm to be a good steward in the environments, communities and customer groups that it serves.
Those ESG commitments, he noted, will be expanded as the firm officially takes on a Certified B Corporation certification from the non-profit B Lab that recognizes Sezzle as a business that has met specific standards in terms of its verified social and environmental performance, its impact on its workers and customers, and its public transparency.
It’s a high standard to go after for Sezzle, Youakim noted, but one aligned with the goal the firm has pursued since Day One: helping people build sustainable access to credit is actually the right thing to do, and thus a public good.
This reality makes it easier for Youakim and the Sezzle team to do their jobs because the merchants to whom they pitch their services can offer a distinct customer benefit when rolling out a BNPL offering. Once comfortable, consumers have made it clear that credit flexibility is nearly universally appealing and highly valued.
“I think whenever a customer is given an easier path, they’ll take it,” Youakim said, “and I think that’s what merchants see across the installment products out there.”