For fintechs in the expanding buy-now / pay-later loan industry, forming partnerships with merchants, charge card networks and lenders is key to reaching scale, as evidenced by a recent bargaining frenzy.
These last weeks Klarna announced a pact to expand BNPL services through Stripe, and Amazon extended a high-profile BNPL deal with To affirm. But many traditional banks and card networks are joining the fray by forming partnerships with BNPL providers.
The buy now / pay later fintech, for example, signed agreements last year with Discover Financial Services, Ally Financial and private label credit card issuer Alliance Data Systems to expand beyond its product line. Short-term, interest-free payment basis. ready for shopping at low prices.
âCredit cards are broken for a lot of people – they don’t like the product – and with our app we’ve created a more consumer-friendly way to fund all types of purchases that we plan to expand significantly. via more traditional banking partners. âSaid Paul Paradis, president of Sezle.
Until now, Sezzle has primarily targeted young consumers who are wary of traditional credit cards or who have no credit history.
The Minneapolis-based company, which today focuses on purchases under $ 500, expects significant growth next year by expanding its consumer finance options through its latest pacts, and others partners could be announced, Paradis said.
“You can almost think of the new generation of installment lenders as bringing pickaxes and shovels into the BNPL gold rush, thus opening up the possibility for new players to become lenders primarily through partnerships,” said Adam Hallquist, director of FTV Capital, which has $ 4 billion invested in fintech companies and other lenders.
Sezzle’s most recent deal was a strategic partnership with Alliance Data last month. The arrangement builds on the company’s $ 450 million in Columbus, Ohio purchase of BNPL Bread’s competing supplier Last year.
Bread will offer its installment loan products through Sezzle’s merchant network and Sezzle will leverage Bread’s loan underwriting capabilities for larger purchases, the companies said.
âWe will give Sezzle additional installment loan capabilities through Bread so they don’t have to build it, and Sezzle is giving us easy access to 40,000 merchants through an API,â said Ralph Andretta, CEO of Alliance Data, in an interview.
Sezzle’s deal with Ally, signed last May, allows Sezzle to extend fixed rate installment loans on larger purchases with terms of up to 60 months through Ally Lending, which specializes in lending. consumer for medical bills and home improvement projects.
Paradis said that for merchants offering Sezzle direct to consumers, fintech will route loans to its own subscription engine, or to Ally Lending and Alliance Data, depending on the merchant and the amount purchased.
âA consumer will be presented with options to make four interest-free payments on smaller items, but for more expensive purchases, they will see payment options funded by Ally or [Alliance Data], sometimes without interest and sometimes with interest, depending on the trader, âsaid Paradis.
But Sezzle expects his multi-faceted deal with Discover to be his main driver of near-term growth, Paradis said.
Although Paradis declined to provide details on how Sezzle and Discover will share the revenue, the two companies are increasingly linked. Discover separately invested $ 30 million in Sezzle.
Sezzle, who derives about 80% of his income from the fees he charges participating merchants for every BNPL loan he makes, has entered into a mutually beneficial arrangement allowing Sezzle and Discover to grant BNPL loans, according to the merchant, said Paradis.
âDiscover has created unique merchant fees for its merchants, which can activate Sezzle by extending loan offerings through a one-click co-branded virtual Discover card,â said Paradis, explaining that Discover collects a portion of the fees while Sezzle earns visibility. to millions of merchants who accept Discover. Sezzle underwrites all of his own loans and manages the receivables, using capital provided by Goldman Sachs, he said.
Sezzle, who has a market cap of around $ 850 million, is a small fish compared to BNPL giants like Affirm, which is valued at around $ 40 billion, and Afterpay, which Square bought this year for $ 29 billion. of dollars. But the advantage of Sezzle is the breadth of its reach with 40,000 small and medium-sized traders, which is set to grow considerably thanks to its new partners.
âWe started out with small specialty apparel and beauty merchants that you’ve never heard of, then moved on to e-commerce platforms like Shopify and Magento, and as our brand gained recognition, the merchants started contacting us, âsaid Paradis.
Sezzle’s biggest merchant partners are Bass Pro Shops, Cabela’s and Target, Paradis said.
âThis is still early in the evolution of BNPL, and many traders are going to be offering multiple BNPL options,â he said. âBut ultimately the benefit will go to vendors who have multiple financing options and flexibility, I think the only way to get that broad reach is through partners.