Almost half of U.S. consumers don't have a credit score or have a credit score under 700, and according to a survey by the Federal Reserve, 30% need financing in order to make an unexpected purchase of $400 or more. Retailers without a payment solution in place for these nonprime customers, typically defined as individuals with a FICO® score under 670, are leaving a significant number of consumers without the option to buy from their brand.
Rather than excluding these consumers, retailers would be wise to look beyond the credit score and understand more about this consumer demographic. Some buyers may be facing a life challenge, such as divorce, health issues or a move that affects their credit rating. Other nonprime customers simply don't like using credit cards and have not built a credit history.
As Misti Achilles, Vice President and Head of Marketing at Katapult, the leading omnichannel lease-purchase platform, said, "Every segment — good credit score, no credit score or evolving credit score — deserves the right to be able to make their own financial decisions."
While buy-now-pay-later models have risen in prominence, many retailers are wary about taking on the associated financial risk. With lease-to-own programs, the products are purchased from the retailer by the provider, which then works directly with the customer. This solution creates growth opportunities for retailers because it connects companies with an untapped consumer segment by giving people who can't afford to pay in one lump sum access to the products they need, with the convenience of the ability to pay over time.
Here are three reasons lease-to-own is the best option for retailers that want to expand the number of customers that can engage with their brands:
Lease-to-own helps nonprime customers evolve into prime customers
Many nonprime buyers have evolving credit and will someday become prime customers. Lease-to-own programs aim to build a long-term relationship with these buyers now by offering customer-centric options such as instant approval, various lease terms and early buyout options.
Unlike buy now, pay later, where the buyer can be responsible for the entire balance owed even if they end up returning the product, lease-to-own customers do not have the same obligation and can therefore offer the option for customers to return products under the retailer's standard return policies. Lease-to-own programs can also offer flexible terms which empower customers to select affordable payment amounts and payment schedules that fit their budgeting needs.
"We want to provide very transparent terms so that the customer has a really strong understanding of the product they're getting, all the costs that are involved and the different options they have," Achilles said. "Our goal is not to have a lifer using our product. We want to be there for them when they need us, but once they build their credit up over time and they understand how to budget and make good financial decisions, we're as happy to see them go on to a new product if they choose."
Lease-to-own gives new customers access to your products
Lease-to-own helps retailers increase brand awareness and build a reputation with a whole new customer base by providing a no-credit-required alternative to consumers who don't qualify for traditional financing options. Lease-to-own platform solutions vary in terms of integration and ease of use. Katapult offers a paperless, three-step online application and seamless integration into a retailer's website and point-of-sale system, making it easy to approve buyers and instantly fund purchases. This means customers can access the products they need faster, without a retailer taking on the credit and fraud risk that can be associated with buy now, pay later programs.
"The fact that we purchase the products to lease to the customers is what makes lease-to-own so appealing to our retail partners," Achilles explained. "For the retailer, nothing changes. But everything changes for the customer as they gain access to the products they want from the retailers they aspire to shop with."
Lease-to-own can help retailers provide a better customer experience in the long term
The little-known side effect of lease-to-own programs is the benefit to long-term customer retention. Retailers can have more control over the post-purchase experience, and they gain a partner in educating and advocating for their customer base. This positive purchase process develops trust, increases brand loyalty and leads to repeat sales.
"When a buyer makes a purchase from a retailer, they become our customer too," Achilles said. "We take the same pride in nurturing those customer relationships to a standard that our retailers would be very proud of, and it doesn't end at the point of sale. We work to understand our retailers and what their standards are to continuously provide equal, if not better, service to their customers so that we can develop that relationship for them."
Making room for nonprime buyers to become lifetime customers
A whole new generation of buyers is ready to be welcomed by your brand if you can give them the options they need to become loyal customers. These buyers need and want products, but they're unable to purchase the products using traditional financing or with a single payment. A lease-to-own program allows retailers to help these customers access the products they want with a flexible payment method that fits their current financial situation — and paves the path for today's nonprime buyers to become tomorrow’s lifetime customers.
Katapult Group, Inc. is the leading omnichannel lease-purchase platform, providing alternative solutions for retailers and consumers. Our cutting-edge technology integrates seamlessly with online platforms, enabling our retail partners to expand their customer base, increase transactions, and grow revenue. Katapult's consumer-centric focus ensures an efficient application and approval process while providing transparent and tailored payment terms. Katapult associates with hundreds of retailers across the United States, with merchant support teams, marketing insights, and suggestions for continued success. To learn more about Katapult, click here.