Buy Now Pay Later companies are sweeping the globe, becoming a popular choice for payments, particularly in the wake of Covid-19.
Charlie Youakim is CEO and Co-Founder of Sezzle, a fast-growing, fintech company founded in 2016 and based in Minneapolis, Minnesota. The company’s “Buy Now, Pay Later” (BNPL) mission is to financially empower users by offering a consumer-friendly digital payments solution. It allows customers to buy what they want now and then pay in four instalments with no interest or fees while creating a path to building credit.
The Fintech Times sat down with Charlie to understand more about Sezzle’s offering, and how BNPL helps the younger generation become more financially responsible.
What was the inspiration for creating Sezzle
We saw that the global payment environment was facing rapid change as innovative new companies and technologies began to change the way consumers purchase goods. The last couple of years have seen an explosion of innovations in the financial services landscape. New, alternative e-commerce payment platforms were shaking up the online payments industry, and playing an increasingly dominant role in the sector.
The inspiration for Sezzle came from the rise in alternative payments but lack of access to traditional credit for millions of budget-conscious shoppers. Sezzle’s Buy Now, Pay Later model found appeal among next-gen shoppers as they provide an alternative option to credit cards along with instant purchase gratification. In recent years, credit has become a rising issue for those under the age of 35, due to recent changes in legislation coupled with an extreme lack of financial literacy. Sezzle filled a gap in the market for a generation that has become accustomed to getting what they want when they want it, yet lacking the financial power to do so.
What is your definition of an Alternative payment
I think of alternative payments as ‘payment disruptors’. They disrupt the payment business and introduce the experience of payments. Payment platforms are no longer just the means to an end of the checkout process; they are connections. They connect retailers to consumers on a level that payment platforms never have before.
Rather than just paying with a credit card, these younger consumers are creating a relationship with payments – they are immersing themselves in the experience. Whether it be a social connection, a financial knowledge aspect, or an emotional attachment, alternative payments have become the retail space’s nucleus.
Why is BNPL so popular?
BNPL’s help to avoid credit card interest and make purchases that normally would not fit in your budget. 30% of millennials don’t own a credit card, and even less for Gen Z. These next-gen consumers are looking for ways to budget responsibly without the fear of debt and interest that traditional credit can bring. Buy Now, Pay Later is the ideal solution for shoppers looking to spread payments over time at no additional cost.
Is BNPL popularity and usage a generational thing?
Buy Now, Pay Later options are a solution to this problem among the younger generation because it bridges the gap between the desire to stretch payments out and the straying from credit.
Millennials and Gen Z have the lowest average credit card balance of all current generations, according to Experian’s 7th Annual State of Credit.
Additionally, over half of Gen Z has non-prime credit scores, making it difficult to obtain a credit card or take out a loan in the first place. These reasons constructed the forefront of why this era of consumers are finding alternative ways to pay.
Why is it important for consumers to have multiple payment options?
Consumers prefer instalments. Value comes from buying power, budgeting and control over finances. Option to Pay early and no impact to credit are also very important.
A shift in the evolution of payments is coming. The key in targeting these new consumers will be to evolve alongside them. Venmo introduced users to a platform they didn’t yet know they needed – a combination of personal finance and social media. This app was adopted by Gen Z more heavily than any other generation, and that’s because it’s letting them not only keep track of finances but keep up with friends too.
The solution here will be the flexibility to accommodate this younger demographic. Whether they want to be using Apple Pay, Venmo, Sezzle, or another big name in the alternative payments industry – retailers are going to need options.
How does having multiple payment options benefit retailers and other businesses?
42% of U.S. shoppers don’t complete a purchase if their favourite payment method isn’t available. There is also a positive halo effect for brands; Consumers believe a retailer that offers instalment payments stands behind its products more, is more trustworthy and cares about its consumers more.
Multiple payment options also open the doors for more customers to do business with. Sezzle brings merchants access to our millions of shoppers, benefiting both brands and consumers alike.
There’s been a lot of discussion about the negative potential BNPL can have – do you think this is warranted?
I think it’s the reverse, we’re saving consumers from credit card programs that typically get a lot of shoppers into problems with interest and debt. We help the customer and get them into a more fiscally responsible payment program. The $10 account activation fee that we’re charging is really just an offset for losses, we’re not using it as a revenue driver. Whereas the credit card companies that merchants already accept, their revenue driver is only created through somewhat irresponsible behaviour where customers are now revolving with them and paying interest.
One more consumer trend and differentiator that is fueling growth, especially with Gen Zers and Millennials: they are choosing merchants whose values closely align to their own and are more inclined to make payments with a socially responsible, values-based company. So those that embrace environmental and social good causes, such as planting trees, curbing carbon emissions and awarding student scholarships, will be more appealing.