Just days after Square’s shock $29 billion acquisition of Afterpay, its Minnesota-based buy now, pay later (BNPL) rival Sezzle said it’s planning to leverage its unique approach to underwriting and risk to become a super app hub that will manage all of a consumers’ payments.
“We’re going to keep on carving out a differentiated niche by doing what we’re doing, and we’re getting noticed,” Sezzle CEO Charlie Youakim told Karen Webster, noting his company’s vision to serve as a one-stop shop for every kind of purchase as well as an on-ramp to more traditional credit services.
“Where I think we can take this company over the long term is we are the go-to product that you tap or check out with online, then you can roll your decision at a later point, and that will make the hub,” Youakim said.
His comments come at a time when BNPL use among consumers — and offerings from financials and retailers — is soaring, with competition high and set to rise. Despite Sezzle’s well-established presence in the space, it will not only face challenges from Square but from PayPal as well, which is the market leader in terms of consumer volume, according to PYMNTS’ data. In addition, newcomers such as Apple are also eyeing the opportunity. The company is reportedly prepping the launch of its own BNPL service through Apple Pay.
Even so, Youakim said he thinks Sezzle’s novel approach to credit scoring can help it capture a big opportunity by extending credit to those who may not qualify for it elsewhere, and in turn, fill a void created by banks that have struggled to move in that direction as a result of heavy industry oversight.
“Getting past FICO is very difficult for [traditional banks],” he said. “We’re able to do that because we’re reinventing underwriting. If you think about [our model], we’re able to get feedback in 14 days, whereas a bank’s underwriting models can take eight or 12 months to get a feedback cycle.”
Sezzle’s flexibility is critical because consumers are increasingly struggling to obtain credit from traditional sources. PYMNTS’ Buy Now, Pay Later: The Financial Self-Care Revolution Report found that rejections of credit-line increase requests hit an all-time high in February of 40 percent, compared to just 25 percent a year ago. Similarly, credit application rejections also hit a historic high of 26 percent, up from just 9 percent a year ago.
Youakim said Sezzle is looking to feed demand for credit in the U.S. among the “subprime user base,” or individuals with FICO scores of 600 and below.
“Many of these are young consumers that have not utilized credit before,” he said. “That’s why we pull alternative credit data that can give these customers a start and a starter line.”
But Is It Safe?
While the Consumer Financial Protection Bureau (CFPB) and others have questioned the easy-credit offers that Sezzle and its peers provide as a risk to individuals who can least afford to take on debt, Youakim said BNPL is a safe product for both the company and consumers.
“As they get utilization with the product, they start to build it up,” he explained. “That’s why what we’re offering does a lot as a credit building option for customers because we know they need to build their credit scores first. If we can get them into a credit builder, they can get their [scores] way up.”
The difference, he said, is that Sezzle’s underwriting works like a meritocracy and can loosen or tighten credit in as little as two weeks if repayment status changes.
“That allows us to have monthly reevaluations of our customers and change their lines, generally increasing as they move forward with us,” he said. “Our customer base has proven they can pay us back, so we give them a little bit more access, and that’s allowed us to continue to scale” at a time when banks have generally pulled back.
This meritocracy-based approach will transform Sezzle into a hub where consumers will be able to choose exactly how they want to pay at a later date, with the company already transitioning into longer-term payments as part of its plans enable this, he said.
“Every customer, at different times of their lives, they’re faced with decisions, and they’re going to need to put some payments on hold,” he said. “There are times when you might want to budget over a shorter period, and there are moments where you just want to pay now.”
Youakim said that consumers will be able to keep using their default card and Sezzle’s checkout button online, and then go to the app to manage those payments in their own time.
“You just go to this one spot to manage everything that you’re utilizing to pay,” he said. “We already have these pieces in place. The structure is already there. It’s just building upon it.”