Aaron Conant  0:18  

Happy Tuesday everybody, my name is Aaron Conant. I'm the co founder Managing Director here at the BWG Connect networking knowledge sharing group with 1000s of brands. And we do exactly that with networking knowledge share together to stay on top of the newest trends, strategies, pain points that have been shaping the digital landscape. I spend the majority of my days just talking to brands to figure out what those are when the same topics come up over and over again, we get to the ideas and the topics of these events that we do, we're going to do close to 100 in-person, this year, and two to 300. webinars just like this. So if you want to know more, be on the list Feel free. We don't sell anything. It's all free to brands, but encourage you to reach out, I'd love to have a conversation with you as well pick your brain on a what are the biggest pain points that you're trying to tackle so we can line up other calls this one, so a couple of things, you have questions along the way, dropping the q&a or drop them into the chat and we'll tackle in there. The other thing is, you know, you know, as I'm, as I've been talking to brands, this one has been really unique. Because if we look back a few years, the Buy Now pay later space was like a very, very hot topic. And it's kind of subsided in the conversations that I've had. But just recently, it's been starting to pop up again over and over again. And I don't know if his people are looking at straight up conversion on website, you know, overall traffic is down. But anyways, got some great friends over at Sezzle for I don't know, four years now, maybe five years. And they're all around high recommended provider in the space, the great friends and partners. But Paul, I'll kick it over to you if you want to do a brief intro on yourself. And Sezzle, that'd be awesome. And then we can jump in to the conversation. Sounds good.

Paul Paradis  2:01  

Sounds great. Thanks, Aaron. Yeah, Paul Paradis, president and co founder of Sezzle we started Sezzle back in 2016. Actually, the CEO and I Charlie went to business school together here at the U of M Aaron, University of Minnesota, Michigan. But he's a he's a serial entrepreneur. He started a payments company before says Oh, called passport that's in mobile payments for the parking industry. So if you've ever parked on street in a big city, and paid via mobile app, chances are that was built by passport is first company and you left passport, we'd stayed in touch good friends after grad school. I had gone to the Minnesota Timberwolves in consulting and a bunch of other places. And we started to link back up and start settled together. And Sezzle was the first pain force solution in North America. We saw Buy now pay later actually taking off in Australia, and saw a thought that a lot of the same dynamics existed in the US around young people adopting credit cards later in life or not adopting them at all. And so we launched our paying for solution, I think it was August of 17. And it's really been just a crazy journey ever since we've added longterm installment loan financing for larger purchases now, we actually just launched a pan tus product for subscriptions. So we continue to innovate along the BNPL lines. We work with about 45,000 Merchant partners. We have several million consumers, I think around 4 million consumers, active consumers. And we're based in Minneapolis, Minnesota, but we've become obviously very remote post COVID. I think only about a third of our staff are here in the Twin Cities now. But yeah, really excited to be here. Thanks for the time, Aaron. Yeah, absolutely. So

Aaron Conant  4:06  

you aren't like in your mind, why is this popping up again? Now? Like what's happened over the past couple of years? Because I think a lot of people, I know they, they haven't been thinking about it. And all of a sudden it's popping up more and more like, can you kind of walk us through kind of what you've seen has happened over the past couple years?

Paul Paradis  4:24  

Yeah, I think, you know, BNPL had rapid adoption, when it first came on the scenes. And you know, I'd say the start of the pandemic is when things really started to ramp up with BNPL. And I think it's because, you know, merchants were investing in their online channels. And BNPL is primarily online. It's a great way to get price sensitive shoppers to convert you have that little promotion on the PDP pages and the cart pages. And so it really has a big impact. And I think you know, like most industries that kind of evolve and mature. And I think most retailers ended up adopting a solution or several solutions in some cases. And those typically come with, you know, two year agreements, let's say, so, two or three year agreements. So I think what you're seeing now is, you know, most retailers, this is the time when they're thinking about what technology projects to kick off, you got the holidays coming up, right. And so you probably have a lot of contracts coming up. And, you know, they were used to getting big checks from some providers, and they're saying, Well, what, what should I do now? Do I want to try someone else? Do I want to add somebody to the provider I'm currently using, and so they're probably reevaluating BNPL. For the simple reason

Aaron Conant  5:47  

that makes perfect sense, right? I mean, especially when COVID hits, and there's this mass flood where everybody's going into you no direct to consumer at least toyed with it. And this was a rage at the time, like you're saying it was just rapid adoption, everywhere it was out there. And if you weren't getting hit up by you know, afterpay, Klarna, you know, even you know, Sezzle quadpay, split it whatever it was, and it was a crazy day. And then people were trying to tackle Well, which one do I go with? And they chose one. And this makes perfect sense that we're two years out. And now they're like, wait a minute, who's really survived this entire time. And I now know so much more about it, this is going to be a very interesting time to evaluate new ones. Yes. Educational level was so much higher. One of the big questions was always, how many should I have? Right. But is there a right number, like originally, like the big push? You know, was, you know, one, because it you know, there's confusion with too many. But when there is a lot of the research done, like some people had eight payment solutions, but was there and this BNPL space? Is there a good number? Or are you trying to hit anybody that comes to the site? You know, I think

Paul Paradis  7:06  

what you saw is typically someone who would a retailer would enter into a period of exclusivity in exchange for marketing incentives, right, or some kind of incentive from the BNPL provider. And I think now you are starting to see more retailers once that first period of exclusivity runs up, adding one or two more, or maybe even three, four, or whatever. And I think it is smart. It's a balance, right? Because you don't want to clutter your site with too many options. But on the other hand, each of us do have our own loyal customer bases, you know, you look at Sezzle for instance, and we have, I would say a unique, loyal customer base, in that if you look at the 10, the top 10% of our customers, in terms of transaction frequency, they're transacting with us 50 times per year, which is a lot, right. And you know, most of the providers publish statistics around purchase frequency and our customer base has that 10% has much higher frequency than than most BNPL providers. But I do think you see customers being loyal to one but using others when they have to. Right. And that's a large part, you know who's being offered on the site that they want to shop at, you are starting to see now more and more players offer anywhere solutions, like cards that can be used anywhere, no matter if they have the Sezzle bind button or not. And so I think that is now creating even more loyalty to a specific provider, you have rewards points and lots of other things that you earn spending limit goes up, the more you shop with one provider, right. So there are reasons to stick with one and use one more than others. I think we're in a great position to be added alongside others, because I think we are different from the affirm afterpay Klarna, and that we try to cater to a broader consumer base. I think they're going after a thinner slice of prime young consumers. I think, you know, firms even call themselves the AMEX and BNPL recently, which I think is a little foolish, because I think if I, if I could qualify for an Amex card, I'd probably go get an Amex card. You know, I think our solution is meant to help thin file credit, subprime, you know, young consumers that can't qualify for credit yet to qualify for some credit in the form of an installment plan, right. So I think, because of the way we underwrite and approve more underbanked consumers with less data that we can collect on them, we give everybody a chance, right? If if we can't collect any data on you are still gonna give you a spending limit, it might be lower, or we're gonna give you that opportunity so that you can then build your limit over time. So I think it is smart to add more Are BNPL providers because of that loyalty, because we're all marketing, our Merchant partners to our customer base 30% of our transaction volume originates from foreign marketing channels. So you are getting more than just, hey, I have this option on my site, you're getting access to a large loyal customer base. You have

Aaron Conant  10:21  

from the from the customer side, then do you bring a different group? Right, I guess is? I think we do. Is everybody does? So maybe they have Sezzle today? Should they be looking at, you know, Klarna and afterpay? I mean, that's kind of the thought is, if you're all going after these unique bases.

Paul Paradis  10:43  

Have moron. Agreed? Yeah, I agree. I agree. Again, the trick is, how do you effectively accept all these different payment options without turning your checkout into a NASCAR? Right, and so you know, I see some, I see some checkout pages having like a BNPL option, which when you click on then shows you all the BNPL options that they offer, right? Um, you know, maybe someday, there'll be a way to bring all those together, like the credit card networks have done and just have one, you know, card form that anyone that has AmEx, MasterCard, Visa, Discover, whatever can use. I'm not sure when that will happen. But I think there are ways to make it more streamlined while offering more than one option.

Aaron Conant  11:36  

Yeah, it's just really interesting, the payment space as a whole. So we're at our ice next week in Chicago, in both the dinners around the payment space, and we have another one around payment space this week in LA. It's just very interesting as a whole. Is it a is it a conversion factor?

Paul Paradis  11:54  

Thank you. Yeah, absolutely. You know, 85% of our consumers say that they wouldn't have made the purchase without the option. Right? So it is, in general, geared toward that price sensitive shopper that either doesn't have a credit card, or maybe they have a credit card, but they really only want to use it as an emergency tool. If they're in a bind, and it gives them a way to buy something, spread it over time interest free, and have it automatically budgeted so they don't have to worry about it. So I think there is a consumer, that for them, this is their preferred way to pay. Awesome.

Aaron Conant  12:37  

That I mean, it makes sense that, right? I mean, that's what I think people are spending more money to get people to a website, there's been, you know, how whatever form, you know, performance influencers, however it is it toss cost so much more to get them to the website, they're doing this analysis on everything across the board around, hey, how do I make sure that I convert, I spent all this money to get them there, how to remove every barrier across the board to conversion, you know, they're, like, are there like, new innovations in the space compared to like, two, three years ago, when it was everybody was just throwing it out there. And then there seemed to be a little bit of rockiness, and the BNPL space for a little while. And I like that, and then, you know, innovations in the space that you're seeing as a whole.

Paul Paradis  13:27  

You know, when I when I think of BNPL, the the two paths of innovation that you see are around the shopping experience, or commerce, and financial services, innovation, right? Those are kind of the two roads that were at the intersection of, and this past winter, we soft launched our own overstock marketplace called Ruumur ruumur.com, where our Merchant partners can list excess inventory at a discount. And it's been slowly growing over the past few months, we're just about to launch our own inventory management system on the back end, which will help us scale it even further. But during the pandemic, you know, when you had all these supply chain issues, there's a lot of merchants that had way too much inventory that they couldn't get rid of. And they're looking for ways to offload it right. And so that was one innovation that we came up with that we hope to continue to grow. We just launched pay into as a new payment type, which collects 50% of the purchase price at the time of purchase and 50% in two weeks. And it serves two purposes it will be offered for smaller ticket orders that people want to split were paying for isn't necessary. So maybe your zero to $50 order, but it also fits perfectly for monthly subscriptions that people want to split the pain for product which is you know really what gained so much traction. Didn't work well for monthly subscriptions because you have to pay it back over six weeks. You can pretty quickly spin up a balance and then eventually get turned down once you've hit your spending limit, because you're paying back over a longer period than the first the purchase frequency, right, the pan to collection cycle fits with a month's monthly purchase frequency. So you won't spin up that balance. We just soft launched our first credit card product. As I mentioned, anywhere products come into the market. So this will enable Sezzle to be used anywhere Visa is accepted, which is essentially everywhere. Up till now, you know, you can really only use Sezzle, where we had a bind button. And I liked integration with the merchant or we did it in some cases have affiliate or gift card partnerships with merchants. But the biggest complaint has always been the limitation of usage of Sezzle, I can't use you everywhere.

Aaron Conant  15:45  

Well now. So I can then just turn any purchase into Yeah, a BNPL purchase. Yep, yep,

Paul Paradis  15:55  

you're it's a virtual credit card that via the app you loaded into your mobile wallet. And you can use it anywhere online or in store that accepts tap to pay. And it's going to be a subscription product with different tiers, based on usage, repayment rate, that kind of thing. So the way we make it work economically, because historically, you couldn't make it work just on interchange alone, it's not enough money to cover the costs of operating BNPL. It's essentially a subscription product. So the consumer will pay, you know, varying subscription amounts per month to have the card. Again, based on their repayment history, how much they're using the card, it'll it'll you know, their costs will go down, as they prove to be a better better customer see,

Aaron Conant  16:43  

is this. Do you see a younger generation using this in place and credit cards routinely?

Paul Paradis  16:49  

Yeah, absolutely. Yeah. Yeah. Because what they can do, actually, Aaron is they can use this card to paying for and they really like using their credit card. Maybe it's because they like earning points. They're like, they're they're like delta points, or whatever it is, they can actually add their Delta card as the repayment mechanism for the Sezzle virtual card. And so they're still getting their points when they pay the installments back. But they get to spread that purchase out over four installments. 

Aaron Conant  17:24  

Yeah. That's crazy. That's crazy. 

Paul Paradis  17:29  

I think we would prefer they attach their bank account. So it's, you know, more, you're not worried about credit on credit? Well, yeah, at the end of the day, we accept that risk, you know, for the kinds of people

Aaron Conant  17:42  

I mean, they kind of aversion to credit cards, it's weird, right? My generosity, we all had one I got one, they're handing them out like candy when I hit right, you know, college campus, you know, a t shirt and, and water bottle and a backpack, whatever it is. Right. And now there's this kind of aversion to possibly getting one, but then that at the end of the day, it hurts credit as a whole what happens with credit in this space? Now? Are there any changes there? Because I want to build a credit score. I mean, that was part of it. Right?

Paul Paradis  18:12  

Oh, yeah, that so that's, you know, I would say, that's one of if not, the biggest differentiator that we offer in the space is the ability to build credit, you know, historically, you couldn't build credit with with BNPL. And

Aaron Conant  18:24  

mostly, they don't report to the credit bureaus, or they didn't have to,

Paul Paradis  18:27  

didn't have to and don't want to most most of the providers. Now installment, the long term installment loans are different. Right if you if you buy a peloton and put it onto a 24 month installment loan, that is going to be reported. But the pain for the short term pain for product didn't have to be reported. But again, we're catering to this young consumer who doesn't have a credit score yet. Or if they do, it's really low, just because they haven't built that history up. And so, you know, if you're trying to build a product for you know, your kid who you'd want to help build their credit, it makes sense that you can help them build their credit with BNPL, if that's their payment method of choice, right? So we launched that I want to say two, three years ago, it's called Sezzle Up It's an opt in program, because there are a lot of customers out there that don't want you touching their credit score, and they're very sensitive to it. And so you can use Sezzle Without any credit reporting, but if you want to build your credit, you then opt into Sezzle Up. And we start reporting all of your repayment behavior to the major credit bureaus, and it's been a huge success. You know, a lot of data back the majority of consumers are seeing significant increases in their credit score from the use of Sezzle.

Aaron Conant  19:44  

So he's tackled kind of what happened, we've tackled, you know why it's popping up again right now. You know, loyalty among shopping customers, how many people we would have the number of checkout options to do would be more than one, the credit issue, are there any other other things that pop up routinely, that you're like, hey, this is one thing people need to be thinking about? You know, because I think you're right, I think we're at this time, maybe we should have different one around selecting, you know, the best BNPL provider? Because I think we're at that point is probably why it's coming up all the time right now, right is people are at this point where they need to reevaluate what are the things people need to consider when they're going through that process?

Paul Paradis  20:30  

Yeah, I think, you know, one thing that I'm starting to hear a lot about from retailers is concerned about approval rates. And, you know, at the end of the day, that is maybe the most important aspect of a BNPL provider, because every order that we decline is a lost sale for the for the retailer, and there's a slight chance that they go back and choose a different payment method. But it's unlikely. And that's always been something that we have hung our hats on is having the highest approval rates. And again, I think it's a testament to our risk team that's built some very sophisticated underwriting models that uses alternative data, to approve orders, not just credit data. You know, and I think you're, you're we're hearing a lot of it now, especially because of this push to profitability. I think, in the last three, four years, it was a push to growth at all costs, right. And you heard about a lot of crazy deals being thrown out to capture market share. But those are underwater deals, and the cost of capital has risen significantly, right. And so, you know, all those companies that people have heard of rising to prominence over the last decade, many of those aren't profitable, they're losing money, and they're not able to raise any more right now. So they have to really figure out how are we going to make money on our own? Right? And so one way to do that is to tighten underwriting, so that you're lending money, lending less money to riskier consumers. And so, you know, that's something that if I were a retailer, I'd be asking their your BNPL provider about a lot, you know, what am I approval rates look like, show me what they look like over time. And I think that's where that's one of the areas where we when we also took a long, hard look at how, you know, we can get to profitability quickly, and we got there in November, we were the first ones to get there in the BNPL industry, outside of Pay Pal, I guess, if you consider them a BNPL company. But we did that, because we went through some product innovations, to be able to add some consumer fees to bring the cost down to our Merchant. You know, for a long time we heard from merchants BNPL, too expensive, right? It was, in some some cases, double the price of a credit card fee. And what we've done is we found a way to keep Sezzle completely free for consumers that want it completely free. So if you pay us back with your bank account, instead of cards, if you repay us on time, it's going to be completely free for you. Right as an installment plan. But if you want to use what for us is a more expensive repayment mechanism in a debit or credit card, there's going to be a little convenience fee. If you want access to more brands, we're we're not directly integrated. And we don't get that MDR from the merchant. Here's a subscription product for you, that allow you to access those brands through affiliate and gift card networks to give you more access. So we've we've continued to innovate, to be able to drive more revenue, while bringing the cost down to our merchants, which then allows us to be more competitive in those conversations. And in many cases, we can match or beat credit card rates now and still offer the same experience that we did before.

Aaron Conant  24:00  

Yeah, it makes sense. I mean, just you know, some of the big huge players, the deals they were throwing out to people didn't make any sense at all. They're literally running a business losing money. And then I guess that's the other thing those kinds of good times are probably over is kind of what I'm hearing. So if you're going back out to reevaluate. If they're saying they can do the same thing they did the last time around, they're not lying to you, right? They're not not pulling your leg you're trying to pull a fast one they literally they can't at this point in time and you're right raising capital now is hard and you've got to cover all those marketing costs, which essentially what it was right they bring in cash back into acquire customers, and or, you know, merchants, which in turn means, you know, consumers. Wow, interesting. No, this has been super funny like key takeaways as we get to the last few minutes of the hour. This has been this has been awesome. You've answered my Five to six top questions and then some?

Paul Paradis  25:03  

No, I think I think you asked really good questions. And I think, you know, just going back to some of the conversation we've had, if you're a retailer, and you entered into a contract with a provider, you know, maybe because because they threw a bunch of money at you, or whatever, for whatever reason, right, and your contracts coming up, I would just encourage you to look at what other options are out there. And even go through the thought process of does it make sense to add more than one provider, and I think if you went out and looked at some of your peers, you're gonna see more and more retailers offering more than one, again, because we cater to different types of customers, right, and we will be incremental, on top of what your current BM PL solution is. And then ask hard questions of your provider to, you know, show me my approval rates over time. Show me, you know, show me proof that the incrementality is still there, that you're not just cannibalizing, credit card purchases, or whatever other payment methods you accept. So be critical, it is still a very productive channel for retailers, though. You know, if you haven't looked at BNPL, it's really important. There's a lot of customers out there, through which this is their preferred payment method. You know, we're still seeing between five and 20% share of checkouts on the sites before I mean, we're talking about a major payment method. So it's still important, you know, the landscape landscape has changed, you know, we are definitely all focused on how do we have a sustainable business going forward. Right, and that might equate to a smaller marketing check this time around. But a lot of us have figured out how to create a sustainable business. And, you know, I'd say it's here at Sezzle, we're becoming very aggressive again, you know, it was it was an interesting last year, because I don't know how many people know but we actually agreed to be acquired by a competitor of ours. And about three months later, after announcing the merger, it was mutually terminated, in large part because of where the economy was, and the cost of the deal becoming too high. So we've now retrenched, and we're getting aggressive, and we have a sustainable business model that we're excited to bring the more and more retailers. And that is

Aaron Conant  27:27  

awesome. Awesome. Well, Paul, we're right at time here. Thanks so much for your time today. Thanks for being such great friends, partners, supporters of the network and a ton of brands in it. Yeah, I'll be reaching out to you. We'd love to set up some time to kind of have this you know more, maybe even more in depth conversation on a podcast. But with that, we're gonna wrap this up. Thanks, everybody for dialing in. Look for a follow up email from us more than happy to connect you with Paul, anybody over at Sezzle. I'd love to have a conversation with you as well. With that, everybody, take care, stay safe and look forward to having you in a future event. Thanks again. I'll see you Thanks, everyone.