Marketing Briefing: Zeroing in on the Gen Z consumer with Katapult

I’ll let Rebecca and Orlando take it from here:

Let's start with defining these terms: what are alternative payments, and what is lease-to-own?

Alternative payment is really just a different way to pay – one that doesn’t involve a traditional credit card or a traditional installment loan. Usually it avoids going through the credit card rails, as well. 

Today, there’s BNPL, which has been out there for a while now. And then lease-to-own has also been out for quite some time. But I think what we've tried to do at Katapult is make the process more clear and transparent and educate our consumers on leasing. 

And because it's durable goods, it's things that people need. And so it helps them make these purchases when they might not have any credit – many Gen Zers are facing that problem today. 

And so I think the real beauty here is the flexibility. If you look at an installment loan or a credit card, you buy it, you decide you don't like it, you're stuck with it – and you're stuck with the bill. With our lease-to-own product, though, a customer can return the item at any time, and basically discharge the debt. So typically, lease-to-own is around 12 to 18 months. During that time, they can decide if they want the green sofa instead of the tan sofa. They could return it to us and go get another one.

I'm wondering, is this the best use case for furnishing one's apartment?

Yes, especially for Gen Zers – they're moving away from home, they just graduated from college and they’re getting their first apartment.

I remember with my first apartment, I actually did lease-to-own and it was a much different scenario back then. 

I went to a store that had the choice of the green sofa or the brown sofa – I think I picked the green one. I can actually picture it in my head right now: I had a couch, a dining room set and a pet, and that's all I got. And I made the payments and then eventually owned it, and that was my first apartment. But, you know, I didn't have the money at the time to go out and spend $1000 or $2,000 on new furniture. I was literally stuck with going to this location that didn't have much choice. I think the industry has changed a lot since then to really focus on e-commerce, whether it’s for furniture, appliances, computers, durable goods, or anything else that you need for everyday living. 

So if you had to name the two or three biggest pain points that you’re solving for Gen Zers aged 20 to 25, what would those be?

Access to cash. If you're furnishing an apartment, a decent sofa can cost $600-700. And you might not have that because you just put a deposit down on the apartment with utility bills, because you don't have a long credit history. So that's one. The second is choice. Because we're on Wayfarer and Lenovo and a lot of websites that you can shop via e-commerce, you get the same quality merchandise sale price that you would get if you had good credit. And you have that same choice to be able to get the things you want, and the things that you need. So that helps fill that gap. And then third is the clarity and transparency – it's a different way to pay: you're not stuck on a 24- or 36-month installment loan and you're not paying the minimum payment on your credit card – you've got an opportunity to pay it off at one of the rates that suit you, or return it at any time, and I think that's where the flexibility comes in and that’s where a lot of our Gen Z customers are seeing value in our product.

You mentioned earlier that you used lease-to-own when you were furnishing your first apartment. But today things are different – most Gen Zers do a lot of their shopping online. That means a lot of their interaction with Katapult happens just in that last moment at checkout. So can you talk a little bit about how you've adapted and also how you're constantly adapting the digital experience and the business model to fit the mentality of younger folks?

Well, for one, we understood that the approval process has to be fast. We also knew that when it comes to how much the customer is required to pay, we needed to be clear and transparent. And being able to do that online is different – better, even – than doing so in-store. 

If you’ve ever applied for credit in-store, what generally happens is a salesperson will try to explain things to you – and they may get it wrong. Or you may have to share your personal information with the salesperson (there's some technology where you don't have to do that, but many times you do.) 

And so, what we realized about five years ago is that the e-commerce consumer should be about just a click away from finding out everything they need to know about you. There's no salesperson pressuring them and that allows them to independently manage whatever debt they're about to take on and whatever payments they're about to make. They can feel comfortable about it.

So right now we’re facing inflation, and before that, COVID, and before that, just life, with all its changing geopolitical and economic issues. How would you say these circumstances are trickling down to your target audiences in the US?

We've seen big shifts. At the beginning of COVID, you would have thought that the country's going to go through a major recession, and nobody's going to be buying anything because they're going to be unemployed. Luckily, the government came in with the stimulus money to help the transition. But what we then saw is that customers weren't spending money on going to concerts and theaters – they were focused on their homes. And so in the first six months of Covid, our business was just phenomenal, because people were sitting at home all day, and they wanted that new sofa, or they wanted the new dining set. 

And now things have shifted again. And that’s largely due to inflation this year, which is especially affecting the Gen Z population. Another thing is, post-Covid, people are more focused on traveling – and unfortunately you can't lease travel.