Guillaume: Hello everyone. Guillaume Le Tual here, host of the Ecommerce Wizards Podcast where I feature leaders in e-commerce and business. Today’s guest is Jacob Springer. He’s a Senior Account Executive at Sezzle which is a buy now/pay later system and that’s the topic for today, buy now/pay later for e-commerce. Should you the merchant implement that in your store? We’ll also be talking about some stories about merchants who did implement it and what they saw as results and so on.
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All right, Jacob, thanks for being here today.
Jacob: Thanks for having me, I’m excited.
Guillaume: All right, so let’s dive right in. And of course, you’re representing a buy now/pay later accompany. But we’ll trust that you can show us some objectivity here about the benefits of this kind of feature to add to a website. Can you share with us some story about a merchant who implemented this successfully?
Jacob: Yeah, definitely. I think it might be helpful to provide a little bit of context as to why buy now/pay later is actually a thing. A pretty common misconception is that it’s very similar to traditional financing, but it really couldn’t be further from that. So when I jump back and think of when I first started at Sezzle four years ago, originally we were a US only company helping shoppers typically build credit later in life. They couldn’t get access to credit, you know you can’t get a credit card in the US until you’re 21. And it’s sad to say they were bad consumers who didn’t have the funds to spend but they were underserved by the traditional credit market. So we implemented this concept where they could apply to shop with us and they pay in four installments over six weeks which is relatively a short term. But the catch is we have a charge interest, we don’t do credit checks and we don’t report to collections agencies in the case of default payment. So these consumers that wouldn’t typically be approved for a credit card could get approved by us because we didn’t rely on traditional means of approving shoppers and could get the flexibility they needed or wanted and then the retailer’s themselves could acquire these new consumers.
To make it a little more relevant, when we jumped to Canada about four years ago credit card usage was a lot higher, but roughly 35% of Canadians are credit invisible or those with below a 520 credit score. A lot of them are these younger consumers but they’re looking to get away from using traditional credit to avoid paying those 19 to 29% APRs. They’re using solutions like buy now/pay later to do so for a very similar concept to the US where it’s easy to get approved, there’s no risk and the retailers that we work with that implemented are acquiring these new customers. So it’s worked out pretty well over the last four years. We’ve got a growing customer base. You can see buy now/pay later all over the world explode. I mean, there’s a dozen companies I can name off the top of my head, so it gets kind of hard to distinguish what they do differently. But in the grand scheme of things that’s why buy now/pay later is a thing.
Guillaume: Okay, so that’s great we have established why it’s a thing and thank you for that insight. Let’s say if a merchant implements this in his e-commerce store, do you have any kind of statistics or case study about the best case scenario here? How much increase perhaps in sales or how much lift or how much increase in frequency of purchase or lifetime customer value? Let’s start with the best of scenarios and maybe after that we could explore the worst of scenarios.
Jacob: Sure. When I’m talking about buy now/pay later I’m talking about paying for over six weeks specifically, not anything monthly, typical credit, interest bearing 12, 24 or 36 months type solution, just as paying for a model. Well, we found that when a merchant implements something like this between converting more shoppers at checkout it’s about 20% more frequently than a credit card, higher basket sizes, acquiring new customers through our channels and through the channels of the vendor that they’re using, decreased return rates. Overall, when you combine everything we can get into the nitty gritty, you could expect about a seven to 12% incremental sales increase after about one year of using a solution like this.
Guillaume: Okay, so what’s going to be significant for some merchants, especially the well established ones, 7-8% can be more than like a full year of growth for the more mature established companies. Now everybody wants to know, like, what’s the catch? You know, like, how do you charge merchants? Or like, if it’s interest-free for a six payment, how do you guys make money?
Jacob: So instead of charging consumers interest or fees, when a merchant Sezzle they are offering a customer clicks to checkout, we assume all that risk of fraud chargebacks and customer non-payment, and the merchant is paid in full the next day. The only fee that we have is a per transactional processing fee on Sezzle orders. So you’re never paying anything if anybody isn’t using it. I guess something like that we recently implemented where if you don’t process $300 in a single transaction you’re charged a $15 monthly fee, and way more often than not merchants are hitting that $300 almost on the first day of launching something like Sezzle just to help cover some of that overhead. You know, rising interest rates makes this industry a tough market to operate in. But the processing percentage of our standard rate you just need to sign up without talking to anybody. It is 6.1% and it kind of goes all the way down to a breakeven cost somewhere in the mid fours. I won’t disclose all right on the head but that includes everything. So you’re not paying your processor on top of it. You don’t have to worry about fraud and chargebacks and you’re acquiring those new customers and boosting those sales, which way more often than not, of course, tends to be worth it.
Guillaume: So it’s the merchant that will bear the cost of somewhere between like mid four-ish percent to 6% . But you don’t have the additional cost of 2% of credit card transaction fees and you assume the risk on chargebacks for fraud and so on. So that gives us a clear business model. So the merchant hopes to increase his sales enough by offering this option that it is worth the additional few percentage points which in reality is probably two to four points, because you still need to pay at least two points or 2% for your credit card transactions fee usually. The lower volume of 2.9% of PayPal to 2.0%, maybe if you’re a big enough merchant.
Jacob: Yeah, so typically, you don’t have to pay those credit card fees on top of the Sezzle fee, we have our own processor. So it’s all wrapped up into one. But yeah, at first it can be a little bit intimidating to locate your credit card rate in comparison to a buy now/pay later rate. The way I like to break it down is if Sezzle is processing about 5% share of checkout at a 5% rate, typically it increases the overall processing costs by about a quarter of a percent or seven to 12% incremental sales increase. So a lot of what we do in particular is we help measure that. We don’t have a contract so you’re free to drop Sezzle at any point in time if that ROI is not there. We give the ultimate flexibility to help determine if it’s actually working or not, you’re getting the value out of it or not to help justify the increase in costs.
Guillaume: Okay, is it that frequent in the industry to have sort of no contract so that you just pay as you go or you just use it as you want?
Jacob: Yeah, when the solution first came out it was not. We’re kind of seeing buy now/pay later in waves, I kind of say we’re in wave three. Wave one was to grow at all costs exclusive of everything, don’t offer a million different options. Phase two was kind of looking at not offering a contract, we still prefer it if you want to use us but you’re going to get loads of marketing spend from these vendors to market this buy now/pay later option to your consumers. We’re now kind of encroaching into phase three where we’re finding a lot of retailers offering multiple buy now/pay later options. There’s no exclusivity, there’s no contract. The reason being, a large segment of consumers, I call them buy now/pay later agnostic, don’t care who’s on the checkout page. It could be Klarna, Afterpay, Paybright, Sezzle, it doesn’t matter. They like this solution and they’re going to use it. But there are customers that tend to be a lot more loyal to one vendor over the other. And so for Sezzle in particular, we have customers using us upwards of 49 times per year, they’re building a limit with us, they can opt in to build their credit with us which is very unique. But then there are also customers that prefer to use Afterpay, there are customers who prefer to use Klarna because they’ve built up larger limits with them as well.
And so a lot of retailers are offering multiple because you can be in all directories, social channels, the email campaigns and acquire users from all these different buy now/pay later vendors. And typically it costs a lot less than sending out a Facebook ad or giving a 10% off discount in an email. So that’s kind of where we’re at with phase three.
Guillaume: Okay, that’s interesting. So people can build up their credit limit with these kinds of tools. You said maybe they don’t have a credit card or whatever as an additional source of credit.
Jacob: Yeah, that’s unique to Sezzle, it’s an opt-in feature. I don’t believe anybody else is doing that for pay in full yet.
Guillaume: Well in the product space, if other people think it’s a good idea then you have like 18 months max before everybody else does it. So that’s pretty interesting and now let’s move on from this, let’s say, what percentage of people see a lift by implementing this kind of buy now/pay later versus maybe a store that has it but didn’t change anything?
Jacob: Yeah, so it’s very dependent as of now on what types of products that a retailer is actually selling, as well as the price points of the products that they’re selling. So typically, when I talk about a conversion increase that’s going to be your bigger basket sizes $300-600. Typically, it is paying for solutions that are really only viable up to about $1,000 for a single transaction. The reason being that it’s just a shorter repayment period, But typically for the consumers that are using them, even $250 every two weeks is a bit much. And so when we look at things like auto, sporting goods, for example, we’re on altitude sports, they saw a bigger increase from repeat and new Sezzle shoppers than they saw from an actual basket size increase. If you look at something with a lower basket size, like fast fashion, sustainable fashion, makeup and cosmetics, nutrition and supplements, they see a much larger basket size increase and customers are purchasing more in one transaction.
So one, not only is the consumer boosting their average basket sizes but as a retailer you’re shipping out more products in one single order, and overall you tend to be saving on your shipping costs, especially if you have a free shipping threshold that you’re covering for the customer. So it’s very dependent, in that case we don’t see a lot of churn in this industry except in some of those industries that the solution tends to be a bit newer like auto and experiences travel hotels, is much newer. But as these options become more of a preferred payment type rather than a financing tool I think we’re going to see those spaces grow much more quickly. So it’s hard to say exactly who it works for or it doesn’t work for because there are a lot of variables that go into it. But overall, those are the themes that we’re tending to see right now.
Guillaume: But you’ve still given us good guidelines that usually products under 1000 bucks people usually don’t want to pay more than 250 bucks every two weeks or so?
Guillaume: Okay, it’s good to know, it’s good guidelines. You were talking about advertising like to partner, so is it that a company like yours and the others will send some kind of a newsletter or whatever, to promote to the merchants. So then the consumers are signed up because they’ve used the solution, once they’ve signed up for it to be notified. Then they see what deals are going on and where they can use your solution and so you try to drive traffic to your partners and business to yourself at the same time.
Jacob: Yeah, exactly. So it means buy now/pay later solutions are becoming more of a preferred payment type, customers are looking for where else and in particular they can use that solution, especially if they tend to have a preference of one over the other. So speaking to Sezzle in particular, we send out emails, we send out push notifications through our mobile app, people follow us on Instagram, all these new retailers that we’re launching on a week basis, you know, the retailers running some sort of special campaign, they can leverage our channels to get bigger reach on that, know whether there’ll be giveaways around certain holidays, you know, Black Friday’s coming up we have a lot of campaigns planned around that. And a lot of the time we advertise our partners completely free because ultimately we’re not making anything unless someone’s actually using the solution at checkout.
So it’s in our best interest to promote them and it’s completely free. It’s a lot cheaper than running Facebook ads whose costs are obscenely high nowadays even though we have downloadable brand assets that retailers can implement on their own and outreach as well. So for example, one that we find works really well is if you include a buy now/pay later option in an abandoned cart email campaign, that tends to convert a lot more frequently than just like a 10% discount and it tends to be cheaper and saves time as well.
Guillaume: Okay. Good point as well. A great insight there about the abandoned cart email or to have a buy now/pay later incentive if ever that was a cause why was it abandoned? You can solve the problem right there at the checkout. That’s pretty cool. Okay, so I don’t think it’s a very big topic to cover, is there anything else that merchants should know before implementing this?
Jacob: Yeah, I think it’s just very important to find a partner that really aligns with your brand and your values. There are a lot of options out there that could be somewhat predictory to consumers. The solutions themselves are not very complicated or complex themselves, so really, anyone with funding can create one. You have to make sure you’re watching out for your consumers, giving them the best option for them as well as partnering with a brand that you believe in. You know, some people are really good at being with the big cool brands, some people are a little more mission driven, sustainable, I mean, just however they’re looking to operate. It’s a very unique space, it’s a growing space and there’s a lot of money being thrown around at the moment. You know, the low rate isn’t always the best rate but the low rate could also be the best rate depending on what you’re looking for. So there’s a lot of factors that go into it, much more than just the processing percentage that you’re going to get but at the end of the day business is business and every dollar matters. So most of the time it comes down to that but this is something to be cognizant of.
Guillaume: Okay. Well, alright, Jacob, thanks for being here today.
Jacob: Yeah, thank you. Thanks for having us. It’s an exciting space and it’s growing in Canada and we’re happy to be a part of it.