LTO brings durable goods to ineligible borrowers


Millions of people with poor or no credit can be considered the “invisible” of the retail industry, whose options to purchase many items were extremely limited, until recently. The increase in Buy Now, Pay Later (BNPL) installments is bringing millions into the credit world – but not everyone qualifies.

This is where Leasing to Purchase (LTO) comes in as part of another pre-existing form of installment credit that is benefiting from a digital transformation, providing another avenue for those without credit. – or who do not wish to use the credit they have – to make larger installment purchases.

In a recent conversation with Karen Webster, CEO of PYMNTS, Orlando Zayas, CEO of Katapult, compared LTO to the BNPL juggernaut, noting that “unfortunately for most consumers, [BNPL] really only works for small purchases. If you’re going for a larger purchase, you’ll have to look for an installment loan or something like that to spread the payments out a bit longer. While many companies have been doing this for many years… not all consumers are satisfied.

The new study, “Retail’s Invisibles: Leaving Flexible Digital Payments to Reach Underserved Durable Goods Customers,” a collaboration of PYMNTS and Katapult, found that some 79 million consumers have an interest in or have used capital leasing. The percentage of people earning six-figure incomes who have used or would use LTO may be somewhat surprising to the credit-conscious crowd, but not to Zayas.

“It’s expensive to live today, especially if you’re in New York, like I am today, and you have $ 100,000. [salary] doesn’t go very far, ”he told Webster. “If your refrigerator breaks down and you don’t have the capacity on your credit card, you need to get a refrigerator in a day or two. It really helps people in difficulty, and even though they earn over $ 100,000 a year, they may not have the capacity on their credit card to get those necessary items… hard goods, ”such as large household appliances.

Sticking to the refrigerator example, Zayas told Webster, “they could have gone to a cabinet [store or] used appliance store, and hope it works. But he may not have a guarantee. This is not the model that fits perfectly into their kitchen. We give that consumer the same choice that a primary consumer gets with the lease-to-buy option. “

Read the study: Finding the Invisibles of Retail

Obtain merchant membership on LTO

With purely FinTech BNPL brands making headlines in recent years, consumers with bad or bad credit are often shocked that they don’t qualify. This is where LTO comes in.

As Zayas explained, it starts with the integration of often skeptical merchants who may have already denied those same consumers a store-issued credit card. Webster asked how these discussions are going.

“The first question I ask them is who their primary lender is and what their approval rate is. Usually they say somewhere between 50-60%, and I say, “Well, what is the other 40-50% doing and what are their options? the recourse for this consumer is rental with option to purchase.

Half-jokingly, he said the route often ends with a choice of “a canary yellow or avocado green refrigerator because those are the only two in stock, not the white GE refrigerator that is in stock. [the consumer] wanted to. So the first question I ask is what do drawdowns look like? And then we talk about a waterfall, where the premium declines [come] to us instantly, and we have a program where we already do it now with many major lenders through integrations.

This way, LTO records the sale while creating a new satisfied and loyal customer in the process.

“Our retailers have found that [LTO] brings a very loyal additional customer. Because, again, they probably desperately need this item, and they are able to fill out this item, take it home today, and know exactly what they’re going to pay for and when they can. pay earlier. We have very strong prepayment options, which we encourage you to own as quickly as possible. It created a real loyal customer.

Zayas said Katapult has an average of 1.95 leases per customer, with “single-digit” returns.

“It means they’re happy with what they’re getting, that they pay for it early – we try to encourage them to do that – and that they are loyal to the store. They keep coming back to this merchant because they feel they have been treated with dignity and respect.

“We talk to traders all the time. They are skeptical at first, they don’t understand it. We will explain to them how we treat our customers, ”he said. “We are delighted that the acceptability of traders has changed. I think there is a drastic change in what merchants see. With someone like us who treats the client with dignity and respect, it’s very clear and transparent, and [LTO] aligns with most of the financing options they offer today.

See also: Katapult CEO: Lease plans with option to buy offer a non-Prime alternative to BNPL

LTO and BNPL: a dynamic duo of installment payments

With BNPL generating billions in additional sales, Katapult has seen the writing on the wall; he partnered with BNPL FinTech Affirm two years ago to help at-risk buyers not to leave empty-handed.

As Zayas told Webster, “We have a partnership with Affirm, and we have a cascade where with some merchants… someone applies for Affirm, the application comes to us automatically, and we hope to make an offer to the customer.”

Affirm and Katapult also offer a “graduated” offer, where option-to-buy lease customers who establish reliable reimbursement models under LTO terms can be promoted to BNPL status.

Zayas said: “If the customers who are refused [by BNPL] and rented with us very well paid, we will share this data with Affirm so that they can offer them an installment loan and go to many retailers. It is at the heart of the company and of my personal mission. I want to offer consumers the best choice of financing for their current credit situation. If they’ve built a great payment history with us, and we share it with Affirm and Afffirm makes an installment loan to them and they become an Affirm client, I’m happy with that.

Katapult’s approval rating for LTO applicants “is in the seventies” as a percentage, Zayas said, based on “very little data, usually the last four of their social, name, address and c is pretty much all you’re going to get. We use AI and machine learning to build our algorithms to find behaviors that indicate a customer’s repayment history, and those algorithms have improved over time. I can tell you that two or three years ago we didn’t have that kind of approval rating, and now we do.

See also: 75% of consumers with option to buy rentals say it puts durable goods at their fingertips



On: Forty-seven percent of U.S. consumers avoid digital-only banks due to data security concerns, despite considerable interest in these services. In Digital Banking: The Brewing Battle For Where We Will Bank, PYMNTS surveyed over 2,200 consumers to reveal how digital-only banks can boost privacy and security while providing convenient services to meet this unmet demand.

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