How Lease-to-Own Boosts Online Sales – and Economic Inclusion

Lease to own paradigm

New Lease-to-Own Paradigm

While the explosion of the BNPL (buy now pay later) industry has been credited with granting financial access to a wider audience, many consumers are still being left behind. That’s where the growing lease to own (LTO) industry comes in, serving sub- and non-prime customers with credit scores below 650–or even no credit scores.

The lease to own paradigm has shifted dramatically in recent years, aided by technology. In the past, brick-and-mortar companies such as Rent-A-Center would buy items wholesale and then lease them to consumers from their stores. Today, eCommerce and brick-and-mortar retailers can easily accept lease-to-own payments at the point of sale. The premise and promise of lease to own has been transformed, and its reach expands every year.

Reaching Millions of Underserved Consumers

At least 30% of American consumers are overlooked by traditional financing options. In fact, not even counting those with low or evolving credit scores, a report by the Consumer Financial Protection Bureau (CFPB) revealed that 22% of the adult population of the United States doesn't have a FICO credit score at all. That’s millions and millions of potential customers excluded, and billions of dollars in potential sales lost.

Many common reasons for low or non-existent credit scores have nothing to do with irresponsible behavior or poor financial decision-making. Recent immigrants or those born into low-income families struggle to gain a foothold compared to established members of the middle and upper classes. Young consumers are new to the world of borrowing, and it takes time to build a credit history.

Regardless of a consumer’s background, there are a range of common payments that are not reported to credit bureaus and therefore not reflected in FICO scores–including rent, utilities, and debts from small businesses and even some small credit unions. Therefore, a significant number of consumers are weighed down by low credit scores despite having strong track records of on-time payments and responsible financial management.

With its innate ability to include more consumers in the economy, lease to own is a powerful engine of growth in retail and eCommerce. In the new era of lease to own, brands have discovered a relatively low-cost strategy for bringing in trustworthy, eager buyers who would otherwise be priced out or excluded due to lack of credit.

Bottom-Line Benefits of Lease to Own

By opening up paths to financial opportunity for all consumers–even those with no credit history–online retail brands can demonstrate that they are making an effort to serve everyone. Lease to own makes it possible for more people to get what they need, boosting quality of life. Empowering consumers to pay at their own pace also improves their overall outlook.

Retailers that embrace lease to own are able to expand brand awareness among a large, untapped audience, winning fierce loyalty from people who have been denied purchasing power in the past. For example, Katapult, an omnichannel lease-to-own platform, reports a repurchase rate of 48%—and rising as reach grows.

“Finding Retail’s Invisibles: Leveraging Flexible Digital Payments to Reach Underserved Durable Goods Customers,” a 2021 report by Katapult and PYMNTS, surveyed 2,122 respondents to determine how consumers deepened their relationships with merchants when offered a range of payment options.

The research found that as many as 75% of consumers bought durable goods through the past year, and that consumers–particularly millennials–have turned to lease-to-own solutions. Approximately a quarter of those who bought home appliances opted for lease to own or similar types of financing, and a slightly smaller percentage did so when buying home furnishings. A sizable majority of respondents explained that they used lease to own options to help manage their expenses while meeting immediate needs for essential items.

By opening up new paths to purchase through accessible and flexible payment options, merchants foster strong customer relationships and retention, increasing online sales and revenue over time.

Drive Inclusion and Sales with Katapult

For eCommerce retailers looking to power online shopping for non-prime customers by offering lease-to-own options, Katapult ensures smooth integration–off-the-shelf, custom direct, or with leading eCommerce platforms. Partner retailers also get designated, hands-on support.

Driven by proprietary artificial intelligence (AI) and machine learning (ML) risk-modeling technology, Katapult predicts consumer behavior with more accuracy than traditional credit scores, enabling transformative opportunities. Customers get plans that meet their individual needs–they can pay off loans early or over time, get up to $3,500 in loan pre-approval, and they’ll never see a late fee, ever. For retailers, funding is quick, typically received in one to three days, so they can focus their energy on attracting new customers and fueling growth.

With Katapult, merchants improve conversion and average order value (AOV), and shoppers get a seamless checkout experience, award-winning customer service, and the products they need across durable goods sectors including furniture, auto, electronics, outdoor, and more.

There’s a world of shoppers out there waiting to be included. Are you ready to open your virtual doors to a new and loyal audience with lease to own? Download the plugin to integrate with Katapult and offer a flexible, fair, and inclusive payment option at checkout. To learn more about how Katapult can help your business grow, reach out to Katapult’s sales team.

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