Retailers adding lease-to-own financing options

As inflation puts increased pressure on already strained wallets and millions of households now live paycheck to paycheck – many earning more than $100,000 a year – durable goods retailers are keen to strongly ensure that their payment options are aligned with the realities of 2022.

PYMNTS research found that consumers are leaning more towards lease-to-own (LTO) options for reasons ranging from bad credit/light record to the installment-type flexibility it offers at a time of economic uncertainty. persistent where the pandemic passes the bad news to inflation.

“Finding Retail’s Invisibles: Lending Flexible Digital Payments to Reach New Durable Goods Customers,” a collaboration between PYMNTS and Katapult, noted, “A representative sample of nearly a quarter of adult U.S. consumers who purchased durable goods over the last 12 months said were very interested in participating in ‘lease-to-own’ programs, translating into up to 46 million new consumers for retailers equipped with LTO financing.

Get the study: Leverage flexible digital payments to reach new durable goods customers

What’s good for the customer is good for the retailer, as Katapult CEO Orlando “Oz” Zayas told PYMNTS in an interview.

“For retailers, [LTO] brings in an additional new customer,” he said.

While retail credit approval typically hits 70%, Zayas said “there is still a wide range of people who are not approved. What e-commerce retailers have specifically discovered is that the customer looking for financing needs a solution now. It’s not like walking into a store and thinking about it and coming back later.

Retailers seeing the writing on the wall are capitalizing on this urgency with LTO solutions that have turned the script on rent-to-own concepts seen as predatory and unforgiving.

“We’ve all had the case where you build a cart, then you leave for some reason, and all of a sudden you get emails and texts from this retailer saying, ‘Hey, you left a cart. open “”, Zayas mentioned. “The reason is, and the same with finance and lease-to-own is that you have to capture that customer when they make the transaction.”

LTO strengthens bottom line

After running tests showing that LTO sales are truly incremental, Zayas told PYMNTS that being “able to capture the sale at the time of purchase…develops a loyal customer.”

“It comes down to prioritization,” he said. “If you look at the volume we can bring to a retailer, it’s between 3% and 10%, maybe 15% of incremental sales, which is huge. For any retailer, even a 4% increase in sales, and they’ll jump at the chance.

While retailers are still in a whirlwind of adopting and integrating many of the pandemic-era digital tools, there can be some integration hesitation with concepts like LTO. With Katapult’s integrations with platforms like Shopify, BigCommerce, and Magento, Zayas said that’s really not a barrier.

“We have [application programming interfaces (APIs)] set up, and [retailers] can, in as little as a day, have us as an option in their shopping cart,” he said. “If it’s a waterfall integration, we have an integration with Affirm where if it’s an Affirm customer, we can enable what’s called Affirm Connect and within a day or two , be in the cascade and start receiving the application stream.”

Traditional retailers are tougher, but that’s changing just as fast. Zayas said “some of the larger retailers where there are legacy POS systems” don’t always see the financial benefit of switching outlets to handle LTO financing.

What’s compelling is the incremental sales that can be quantified, and more importantly, the addition of LTO gives retailers the opportunity to win new customers with a strong sense of loyalty.

“A few years ago the Federal Reserve released a statistic that 40% of the population is in trouble if they have a $400 emergency,” Zayas said. This is the population we are trying to serve, and we are trying to serve them in a clear and transparent way. If the retailer gets that, they can tap into new customers. »

See also: 75% of renting consumers say this is their only option for durable goods

Communicate deeper loyalty

Tax season comes on top of simulation inflation and pandemic. But Zayas said these are pretty ideal conditions for LTO consumers and, by extension, the retailers they buy from.

“[LTO] brings in a new customer who is loyal because they have been shunned or discouraged [at] other retailers, and we’ve given them the options they need,” he said.

As far as the retailer is concerned, it is important to publicize the availability of LTO. Retailers decide how to present the option at checkout, and there are several variations.

“Some retailers will have a fundraising page,” he said. “In the cash register itself, you’ll see the main options – Visa, Mastercard, what other options they may have for financing – and then they’ll have a lease with an option to buy. We call it the NASCAR cash register with all the different names.

“We usually put ours with a little slogan on it [saying], “No credit required”, and it helps the customer to identify, “My credit is not so good”. I want to try this option,” he added. “Then when they apply, it’s very simple information that we get.”

As it happens online, “they’re not in a store dazzled by all this new stuff they can buy,” Zayas said. “They’ll have a fundraising page, they’ll have it at checkout, they’ll use social media to let them know there’s an option available,” which brings LTO into social selling.

Read also: Katapult says 2021 was the year of inclusion



On: Forty-two percent of US consumers are more likely to open accounts with financial institutions that facilitate automatic sharing of their bank details upon sign-up. The PYMNTS study Account opening and loan management in the digital environmentsurveyed 2,300 consumers to explore how FIs can leverage open banking to engage customers and create a better account opening experience.

Michael J. Birnbaum