Member Exclusive, Payments

Payments Briefing: PayZen wants to combat rising medical debt with ‘Care Now, Pay Later’ solution

  • This week, we explore how PayZen uses a variant of BNPL to tackle healthcare affordability in the US.
  • We also hear from Stax CEO Suneera Madhani on the gender gap in fintech.

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Payments Briefing: PayZen wants to combat rising medical debt with ‘Care Now, Pay Later’ solution

The BNPL space is becoming increasingly overcrowded, with a slew of new entrants across banking, payments and tech over the last few years. This is making it increasingly challenging for BNPL providers to differentiate their offerings, and is pushing them to innovate towards newer categories like travel, education, housing, and healthcare.

As US healthcare costs continue to mount, two major BNPL providers, Afterpay and Sezzle, recently signed healthcare-related deals that will allow consumers to pay some of their medical bills in four interest-free installments.

Healthcare could become an important sector for BNPL providers as consumers seek out flexible payments for high-value expenses. A recent survey by PYMNTS found that 43% of US adults (about 111 million consumers) want to use BNPL for ‘big ticket’ purchases – and among them, over 20% said they’d like to use it for medicine and prescription payments.

Afterpay and Sezzle are not the only firms to recognize the opportunity in using BNPL to tackle healthcare affordability and reach new customers. PayZen is a San Francisco-based startup that offers a ‘Care Now, Pay Later’ solution, which allows patients to pay their out-of-pocket medical bills over time in flexible installments.

The CNPL model uses AI and machine learning-based predictive modeling to generate personalized payment plans of up to 60 months, customized to each patient’s individual financial situation. This enables healthcare providers to offer affordable payment options to their patients by accurately determining each patient’s unique ability to pay.

PayZen’s co-founder and CEO, Itzik Cohen, says that patient payment responsibility in the US has more than doubled within the last two decades, and is expected to double again in the next ten years. As a result, medical debt has become a $300 billion problem – and nearly one in three Americans gets delayed medical care due to high costs.

I spoke with Itzik to hear more about why he felt the need to create PayZen, how the CNPL model works, and whether healthcare could become the next major trend for BNPL.

How did the idea for PayZen come about, and what need does it serve in the industry?

My co-founders and I had previously founded a fintech company that helped consumers manage and eliminate debt, and we found that most debt consolidation was happening because of medical debt. We saw that with the consumerization of healthcare, there’s been a major shift of payment responsibility from insurance companies to the patients themselves. Healthcare affordability is a huge problem that’s only getting worse.

On the flipside, because most families just can’t afford a large, unexpected bill, healthcare providers are collecting less and less of their revenue. Health systems already operate on razor-thin margins, so it’s a critical problem for them. With our finance and technology backgrounds, we saw a way to address healthcare affordability that helps patients better afford the care they need, and helps providers capture more revenue that they’re currently writing off as bad debt. We made it our mission to focus on this specific problem, and we founded PayZen to do it.

What happens if a patient can’t afford an installment payment, or forgets to pay on time? Are there late payment charges? Could their medical debt worsen? And is their credit score negatively impacted?

We believe that anyone who wants to pay their medical bills over time should be given that opportunity, so we approve 100% of patients, regardless of creditworthiness. Patients set up auto-payment via ACH or debit card, so they don’t have to stress about remembering to make payments, and we send reminders so that they’re always aware of the next automatic withdrawal.

If financial circumstances change, we offer payment holidays, adjust payment amounts or terms, and otherwise work with the consumer to make the repayment plan fit their new circumstances. In some cases, that can even include debt relief. PayZen never charges any interest or late payment fees, ever. Patients will never pay more than the cost of the service they received from their healthcare provider, so their debt will never increase.

Enrolling in a payment plan has no impact on a patient’s credit, and we don’t report payment history to any credit bureaus. If a patient does not pay their payment plan in full, we will never send them to debt collectors. We don’t utilize aggressive collections tactics or legal strategies.

Our experience has shown that most people want to pay their medical bills, but the current system doesn’t give them an affordable way to do so. We are committed to lessening the burden of medical debt, which is why we discourage patients from using a credit card to pay their monthly installments. Transferring debt from PayZen to a high-interest credit card only serves to worsen the situation, and unless a patient is responsibly paying off their credit card every month, we don’t believe paying by credit card should be a prominent option. We encourage ACH withdrawal as the payment method.

With players such as Afterpay and Sezzle recently signing healthcare-related deals, do you think healthcare could become the next major trend for BNPL?

I hope not. The model for BNPL providers doesn’t really benefit healthcare affordability in a meaningful way, and can actually make the medical debt problem worse. BNPL can involve large, even obscene hidden interest charges and fees. Affirm’s healthcare offering, for example, can cost up to 30% APR to use. And Sezzle only offers a 4-payment plan, so it doesn’t address affordability for larger medical expenses.

The fact is that healthcare affordability problems are deep and complex, and BNPL isn’t a workable solution for them today. Out-of-pocket healthcare spend is a $1.2 trillion-dollar market in the US. Solving healthcare affordability requires deep credit underwriting expertise and the ability to absorb credit default risk – not to mention the difficulty of integrating with healthcare systems versus ecommerce platforms, and the intricacy of managing the backend and provider payment agreements. None of these are core competencies for BNPL providers, but they are all part of our Care Now, Pay Later solution.

My hope is that new companies will enter the healthcare space that operate with a model and a mission like ours. There’s a huge market opportunity and a chance to make a real impact on Americans’ physical, financial, and emotional health. I’m really excited for the future.

“In the good ol’ boys club, knowledge is shared on golf courses, at country clubs, and in locker rooms”: Stax CEO Suneera Madhani

Women’s representation within fintech, which is otherwise touted as progressive, remains surprisingly low. While women comprise 52% of entry-level financial services jobs, their representation from entry-level to the C-suite in the industry falls by 80%.

Tearsheet’s Subboh Jaffery sat down with Suneera Madhani, CEO of payments platform Stax, to get an insider’s view of where things stand. Madhani, as a woman of color leading a fintech unicorn, is a rare example in the industry. She argues that women designing more products and running more firms is quite simply the need of the hour.

In 2021, women leaders only managed to secure 2% of venture capital funding in the US, which is the smallest share they’ve had since 2016. In addition, it was the second year in a row that funding for women-led firms shrank. In 2019, 2.8% of funding went to women-led startups, while in 2020, that figure fell to 2.3%.

Speaking of fintech in particular, just 7% of founders are women. Additionally, between 2016 and 2021, women-founded fintechs have received on average 50% less capital in their funding rounds than men-founded firms.

From the lens of racial minorities, Madhani said less than 1% of funding goes to minority-led startups, and for minority women, that figure recedes into decimals. Women in fintech need to be able to receive funding early on so that they can scale and grow their companies, she elaborated.

Madhani says the core of the problem is that finance and technology have traditionally been patriarchal industries, where women have been few and far between. So when it comes to being a woman leader in fintech, there is an abundance of gatekeeping pertaining to the spread of knowledge. “In the ‘good ol’ boys club, knowledge is shared on golf courses, at country clubs, and in locker rooms. Women are not being exposed to the tools of the trade, and therefore there are fewer women in fintech to be examples for others,” she said.

The way forward, in Madhani’s view, is to pave the way for a world where women can learn from the experiences of other women. She argues that VC’s and big organizations should directly be held accountable to have more women at the top. While diversity should permeate the entire organization, it is having women in top positions that will provide confidence for other women to strive for higher.

“People are saying that there’s a rise in momentum for women in business, but the numbers still don’t show it. I’m not asking for the number to be a hundred percent, but it shouldn’t be 3%. Feminism is not a ‘greater than’ mentality, so women are not greater than men. That’s wrong. It’s about women being equal to men. No one’s asking to be treated better than anyone else. Everyone’s just asking for equality. That’s what has to change,” she said.

Highlights from our recent coverage

Google launches digital wallet: 5 questions with Payments GM Arnold Goldberg

Google launched its digital wallet and virtual cards at its latest I/O developer conference, marking its first move in the payments space since the Plex project was scrapped late last year. Tearsheet spoke with Google’s head of payments, Arnold Goldberg, about what this means for the Big Tech’s journey in financial services.

Data Snack: Real-time payments contribute a meager 0.9% to US transactions, FedNow expected to change that

The US real-time payments industry is small, with just two networks, neither of which span across the country. The Federal Reserve’s country-wide real-time payments network initiative, FedNow, is expected to become one of the biggest payment clearance settlement systems in the world upon release.

The Acquire Podcast Ep. 8: Billboards, donuts, and QR codes: Flexbase is building awareness

Flexbase is a payments platform for construction companies. The firm’s CEO Zaid Rahman and head of growth Joey Randazzo join us on the Acquire Podcast. From blanketing one city at a time to shipping mysterious donut boxes, their awareness campaign is doing new things.

What we're reading

  • Stripe partners with OpenNode to allow instant fiat-to-Bitcoin conversions for businesses (CoinDesk)
  • PayPal laid off 83 employees as it reduces Bay Area presence (TechCrunch)
  • Mastercard launches ‘smile to pay’ system amid privacy concerns (Guardian)
  • Klarna lays off 10% of its workforce (TechCrunch)
  • Zelle is making its way into US retail payments (Forbes)
  • What’s new with the new Google Wallet? (Tom Noyes)
  • PayPal, Venmo increasingly included as payment options at in-store POS (PYMNTS)

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