Okay, good morning, everybody. Thank you for attending our Nashville Conference, and I'm pleased to be hosting Katapult Holdings this morning. My name is Vincent Caintic. I'm the specialty and consumer finance analyst here at Stephens, and to my right, I've got Orlando Zayas, CEO, and Nancy Walsh, CFO of the company. So welcome, and a good early morning to both of you.
Yes, good morning.
Thanks for having us.
Yeah. So first, just a brief introduction. For those of the who aren't familiar with Katapult, if you could give us a brief intro into the business.
Sure. So Katapult's a lease- to- own, mostly focused on e-commerce. We've been around since 2012, started by a few founders who saw the idea of using big data and non-credit reporting to approve people. We moved... When I joined in 2017, we moved the business primarily to e-commerce, 'cause I saw that as an opportunity that was being unmet. A lot of players in store, obviously, and we like the e-commerce, which creates a whole different challenge of fraud detection. That's our first thing we have to worry about, and then speed. If you know, if we've all shopped online, and if you're waiting for a decision and you see that hourglass spinning and spinning and spinning-
Yeah
... if it's not done pretty quickly, the customer will leave. A few years ago, we launched with Wayfair. That was our biggest client, continues to be our biggest client, and continues to be a really important partner for us. And I think they love us because of the technology that we've built, the speed, ease of use, and really about, it's about the clarity and transparency, which we've adopted as our game plan with our consumers. Because online, you know, you're just a click away from them finding out what the real story is. So we decided that we were gonna be clear, transparent, let the customer make that decision, and let them understand what they're getting into. And that has proven to be successful because what that has driven is a strong customer repeat rate.
We have about 50% of our customers come back and lease again. That continues to help drive the business forward, as well as some technical innovations, which we'll get into, around helping the customers buy things that they need, durable goods that they need, from a multiple of retailers.
Yeah, perfect. So, we talked a little bit about the e-commerce channel. So understanding you're primarily focused on e-commerce, if you could differentiate that between the other lease-to-own companies. So when we think about traditional brick-and-mortar LTO offerings, what are the biggest benefits for merchants when they're using Katapult?
Sure. The biggest benefit is, one, you don't have a salesperson involved, so you're saving that cost from a retailer's perspective. But it really is about capturing that consumer. I mean, we've all had the... You know, we've all been shopping online, and, you know, you start to build a cart, and then you realize, "Well, maybe I need to look at, you know, some other retailer," and you bail, and then suddenly you're getting texts and emails from that retailer saying, "Hey, come back. You left a cart open." And so what we're trying to do is bring that incremental customer that doesn't bail, because we're bringing them a financial solution that the customer can accept, in a very clear, quick manner.
I mean, our application is unlike many of the brick-and-mortar players, is basically everything you know off the top of your head, so Social Security number, address, date of birth, and phone number. That's all you need.
Mm-hmm.
We don't need your checking account and your routing number, and your firstborn, and maybe your mother's maiden name.
Yeah.
So we make it easy, and that's how we've built the company is to make it really clear, really transparent, very easy. And I think the merchants like that because the integration is, you know, it's there, but it's not as ominous or humongous, what?
Onerous.
Yeah, onerous. Sorry, I knew it was an O. Onerous, for the retailer to get integrated. And I think where the biggest difference is between the brick-and-mortar guys and us, is that we're having a conversation directly with the customer. Maybe not a phone, you know, phone conversation, but we're communicating directly with the customer. So it's on us, from a regulatory perspective and just clarity and transparency, that we lay out exactly what the customer's gonna pay, and they know what they're gonna pay before they hit Submit. And just, you know, on that note, for example, you know, we have the opportunity to make changes in how we present the offer card to the customer, and we recently changed the offer card.
Surprisingly, we put even more information about the lease, when their payments were, when their payoff is, how much they're total paying, all the, all the things, plus more. We found that the take rate was actually higher, about 10% higher-
Okay, hmm
... when we were clear and transparent to the customer.
Okay, great. And that's, I guess, a difference versus the other guys. So, when I hear, you know, some of your statistics versus others, you're able to approve people very quickly-
Others might take a while.
You have the transparency, others are... How difficult would it be for the traditional—like, why don't the traditional guys do this? How difficult would it be? What's the... Yeah.
You know, I've always said, you know, technology, you're only six months ahead of your competition, right? And could they do it? It does take a long time to underwrite online with very limited information, and you've got to build your models around that. And I think the traditional guys, you know, have been in the business for a long time. They have great models, but, you know, there's a salesperson in it.
Mm-hmm.
You know, one key statistic that I know is much different for us than the brick-and-mortar guys is the 90 days same as cash, as some call it, the early payoff is much, much lower-
Hmm
... for us by about half from when I've seen the other ones. And literally, it's in the mid-teens of people that redeem early. And even though we communicate to them consistently around, you know, "We want you to pay off early, 'cause if you pay off early, you're going to come back and lease with us again." And we want them to see the best deal for the time, if they have the money. But I don't think we have a salesperson in the store that's pushing that as kind of the way to get into it, and so that's why ours is much, much lower.
Okay, great. If you can talk about maybe, so for the consumers, the benefits that Katapult offers versus other forms of credit or financing, and then from the merchants, like, what are you able to lift there?
Sure. For the consumer, you know, again, it's the clarity and transparency. I think we could have a drinking game how many times I say that. And it's the clarity and transparency, but it's also the fact that we've kind of kept a lid on our pricing.
Okay.
Our pricing is, from a consumer perspective, a little cheaper than what they would see in the brick-and-mortar side. We don't charge late fees. We don't charge any other fees. It's very upfront, and there's no hidden fees at all. So I think from a consumer perspective, they know exactly what they're walking into.
Exactly.
It is a little cheaper. Now, I don't think in this market, consumers necessarily shop the lease-to-own vendor, if you will, or supplier very much. But in those head-to-head, if they see the price, you know, we'll win.
Right.
We've done that on purpose 'cause we want to charge the very least we can and still make money.
Mm-hmm.
Right? Because we believe that that customer comes back, so we, we're really looking at the lifetime value of that customer and how we can create a you know, an ongoing relationship with that customer, not just a one and done.
Go ahead.
And you can't stress enough, you know, the customer experience that we're looking for, and not charging those fees, not being super aggressive in terms of collections. You know, we really believe that being good to people is good for business, and that makes a huge difference. So, you know, coming from the retail sector, customer experience is huge. The compliance piece of this is really different because we're dealing directly with them.
Perfect. And maybe from the retail side, from the merchant's perspective, when they're looking at different offerings, why? Why Katapult?
Ease of use, that five seconds, limited information. You know, we've been in the waterfall business probably, you know, since the inception. And in a waterfall, you can't stop that process and suddenly ask for a checking account or other information. You've got to make a decision based on what information was sent to you. So, you know, having that limited information, you know, like for example, when we first launched with Affirm, we had to adjust only getting the last four digits of the Social Security number 'cause that's all they got.
Hmm.
So we are now able to underwrite with just the last four digits of their Social, their name, address, and phone number. Boom, it's done, and it's easy. And so there's not a lot of back and forth. And I think also from a customer perspective, our NPS scores are strong. Our customers are very happy with us, and that's a reflection on the retailer, and I think that's what retailers look for is, you know, "Are you gonna make me look bad, or are you gonna make me look good?" And we think not only we're bringing them an incremental customer, but we're actually making them look good.
That was the point I was gonna make, that this is a consumer segment that a lot of retailers aren't focused on.
Mm-hmm.
We offer that opportunity, and we've demonstrated that it's incremental.
Right.
You know?
Right.
To me, it's really a no-brainer that more retailers should be looking at this because it does give them incremental revenue.
Right. How has that sales process or the pitch to the-
Well
... retailer, the merchant, gone?
It's gone well. I mean, I think especially the way we position it, as you know, we're bringing you incremental business, and everybody wants that. I mean, you know, tell a retailer, "We'll give you 3% more sales," they'll sign up all day long, right?
Yeah.
They could miss that just by the holidays, right? But more than that, it's how we treat that customer, that we bring that customer back in over and over again, so they're creating a, you know, a, a strong brand loyalty to this customer who appreciated the fact that the retailer had an option for them, where they might have had to gone go somewhere else.
Okay, great. So good benefits for the, the merchant, good benefits for the consumers. How does all this translate into your, financial performance?
So, just give a little bit of backdrop, this is four quarters of sequential growth that we've achieved as of Q3. We've given an outlook for Q4 that we'll continue that five quarters, and, you know, as of Q3, we had grown top line 16%, and we'd improved EBITDA by $14 million.
Yeah.
I mean, that, to me, is huge. We have done such a great job in terms of, working on the middle of the balance sheet, in terms of our expenses, while we're trying to grow the top line. And, you know, with the tightening that has occurred over this year, we're doing that at lower approval rates, so it's in a very disciplined fashion. So in addition to our technology, I think the strength comes from our underwriting and our focus on controls and compliance, and that's done a great job. So, you know, continuing to add merchants, expanding our relationship, deepening those relationships, and then Katapult Pay, which we'll talk about shortly, you know, those are all terrific avenues for us to continue to grow the top line, but continuing to focus on improving profitability.
That's great. I wanna contrast that actually with the performance of the other pure-play, lease-to-own guys, which we have all of them actually attending, today and yesterday. And it stands out with your volume, top line growing, as well as having good margins. Any color on why that is?
You know, a lot of it, I think, is really data-driven-
Yeah
... that we're focused on treating the customer right. We have great relationships with our merchants. But last year, when we indeed did the big investments in terms of adding our app and building out Katapult Pay, that has given us the opportunity to become a marketplace for our consumers. So even though the waterfalls are very powerful, sometimes it's a little bit less visible who you're dealing with until you've done a lease one time. But Katapult Pay, they go into the app, they can see this breadth of durable goods that's available, and now with Home Depot, Amazon, you know, the rest of that we've added, it's just a destination, a marketplace that our consumers can go to.
That really demonstrates, in terms of data, that those that are using Katapult Pay, probably a lifetime value that is about 50% more than those that aren't using our app. So, you know, using that data, we're able to kind of translate this all into ways to continue to grow. You know, we're able to operate really successfully in any economic cycle, and I think that gives us such a great strategic roadmap for growth.
Okay, perfect.
Yeah, we're not, we're not beholden to store traffic. You know, walk- what's it called?
Yeah, foot-
Store traffic.
Foot, yeah.
Foot traffic.
Yeah. Okay, makes sense. Just click traffic.
Yeah, foot.
There you go. Click traffic.
But we can also drive kind of advertising, promotions, and things that our retailers are offering out to our consumers, probably at a greater extent than others.
Great.
It's just a click.
So, going to, like, that merchant being a driver of your business, you talked about direct integration, things are happening a lot faster. Can you talk about how that works, what are and what are the benefits to the merchants?
Yeah, so you know, we have a strong tech team that can look at any retailer and figure out what's the best way to integrate, work with that team, 'cause they're all different, right? And so yes, they have typical platforms like Shopify and Salesforce and things like that. And we're integrated in many of those shopping platforms. So if they're on those shopping platforms, literally, it's a quick integration. It's really not that hard. And then the custom integrations, you know, we work with them. We launched Casper, which was a custom integration, and continues to be a custom integration because they also are adding 250 stores.
And so as we go into the stores, we're gonna have a very similar process in 2024 for their store, so their store salespeople don't have to mess with the paperwork, if you will. And the transaction is easy, almost as easy as doing it online. They're just doing it in the store. And so, you know, we continue to excel in the technology around making it easy, but also making it easier for the retailer. So, you know, I announced at the earnings a couple weeks ago... They're building their own waterfall, and we're gonna integrate with them. And so when a retailer says, "Yes, I wanna have you in our waterfall," it's a quick flip of the switch.
Perfect, okay. Also, on the merchant side, so if you can give us some insights, and maybe some examples from your relationship with your largest merchant, so Wayfair?
Mm-hmm.
Any insights that you can give on the merchant relationship and how that translates to others and the ultimate goal of the direct integration?
Yeah, you know, the calls we have with them when we do our quarterly business reviews with them, they're very pleased with the result, the results. In the third quarter, we saw something that was very strong and very positive, and I think it's because of some of the changes they made in their financing flow, 'cause they took out some of the partners in the flow and made it easier, so you're not getting all these offers. And we saw our take rate improve.
Mm
... pretty, pretty, pretty nicely in the third quarter. And so I think it's, you know, a partnership with them of identifying those customers that want to lease. We communicate to them. You know, as soon as somebody does an application, even through the waterfall, you know, we're immediately sending an email, trying to explain the lease, trying to, you know, make offers that, that Wayfair may have for certain items if we know what their cart was, to get them back in. And we see that happening more and more, where that take rate of, you know, you did the initial application today, like, within seven days, many of those people will come back, and that take rate has improved, you know, pretty well. In the third quarter, we could see it continue to improve.
and so they're very happy with us, and they're very happy with not only the marketing that we do, but also how we are actively bringing that customer back in-
Mm
... to buy more. And, it's something that I think they appreciate, and they see the, the results of that. And, you know, every time we get on a call, they're very, very pleased with the business.
Good. Perfect. You've talked a lot about Katapult Pay. I'd like to maybe go into that and understand that in more detail.
Sure.
Can you explain how that works, why that's gonna be an important driver for Katapult?
Yeah, so you know, when I first took over the company back in 2017, there was a lot of brick-and-mortar, very similar to the others out there. And I said, "We gotta pivot towards e-commerce." And so as we did, and now 98% of our business or something like that is e-commerce. We still do a little bit of brick-and-mortar, and then we'll do some more with Casper. We realized that, you know, having a limited set of retailers doesn't allow for that customer to come back. Yes, they can come back to Wayfair, but what if they need a TV? What if they need a laptop? You know, and we've... We're actively doing that and trying to sign retailers where we've brought up that breadth.
And so we realized a few, couple years ago that we wanted to create, using technology, create a way for customers to come back and buy anywhere, shop anywhere. And so, we did that with Katapult Pay. So it's essentially in our app. It, it's a feature in our app where a customer can search, you know, Best Buy, Amazon, Target-
Home Depot
... Home Depot, and many others. We tried to fill in the gap from a product perspective. I mean, Amazon pretty much fills the whole gap because you can buy anything on Amazon. To be able to have the customer come back in and make it easy for them to execute a lease through the app, and so it's, it's... You know, I encourage you to download the app if you haven't because it's actually pretty cool. When your COO says when we launched it-
Mm
... he called, Derek called me up, and he says, he goes, he goes, "I just used it," and he goes, "It's really cool." You know? I'm like, "Wow," and it's like, you know, drinking your own soup.
Yeah.
It is cool, and it's easy to use, and we saw it immediately. Customers use it.
Mm-hmm.
So what it does is it allows you to have your app, you have your application, your approval, you know, click Best Buy. You basically go on Best Buy's website, and you look like you're shopping on their website. You buy whatever you want, and then when we see the checkout, we look to see if they're leasable or not, and that's the key to this.
Mm.
Because you can imagine Amazon, the percent of leasable items that are durable goods is probably pretty low, as if, you know, when you think about all their SKUs that they have. And so, how do you make sure they're not buying toilet paper? How do you make sure they're not buying pajamas? And so, that's how we developed the app in mind, knowing this, that, you know, we've developed the AI so that it can identify those leasable items and basically pop up a window to the customer on their phone saying, "Hey, you've got, you know, $300 of toilet paper in here. You have to pay for that separately. We'll have to take it out of the lease, because it's not leasable." And we explain that, and then we show them what the cart is with leasable items.
And they say, "Okay." They do the documents just like they would online. Once they're finished, we issue a virtual credit card where they can pay for the item, and as far as Best Buy is concerned, it's a credit card option. It's a credit card payment. And literally, they get, you know, just like they're paying with a credit card.
Think how quickly that is.
Yeah.
It's not something that takes hours.
Yeah.
It's not something you have to come back in two days, and you're doing this in seconds.
Right.
It's very seamless, customer-forward, and, you know, just the ability to do that-
Yeah
... and the technology is really what sets us apart.
Right. Actually, could you... because maybe, maybe people might not appreciate how seamless, yet how difficult it was to integrate, to do all that in the back end.
Right.
You have the virtual credit card technology-
Right
... you have the ability to just scan, what's leasable and what's not-
Right
... and differentiate between that. Like, how, how difficult would it be to recreate at Kim? Yeah.
Well, I think the secret sauce that we've created is that understanding what's leasable and what's not, and I've heard others say that you can't. That it can't happen, and it did happen. And, you know, we're very focused on doing the right things, not only from a business perspective, but from a regulatory perspective. And we know none of the states would be happy if we were leasing toilet paper-
Right
...or, or pajamas. And so that was almost a non-negotiable. We had to figure that out first, and it wasn't easy. And you can imagine each retailer is somewhat different, too.
Yeah.
And so how we built it, and we do a lot of testing, we make sure that, you know, it- we like... We'll cancel... If something gets through, which we have a few that do, we literally have an audit process that checks it. And then we adjust the algorithm to say, "Look, oh, you didn't catch, you know, pajamas. Make sure you don't have... You know, pajamas aren't on there." And it's so it's hard. It wasn't something that you just- we just, you know, snapped our fingers, and it was created. It took months and months of development and testing to make sure that it worked and worked the right way. Because I think there are others that have had launched a VCC, you know, marketplace-type app, and it doesn't work very well.
You know, we all test each other, I'm sure, so, I would welcome them to test me.
Okay, sounds good. I mean, so you've talked... You have your partnerships, direct partnerships with these merchants, and in Katapult Pay, you can shop almost anywhere.
Right.
Can you maybe give us a flavor of that, that data of like, okay, I'm shopping $hundreds of millions in Amazon or something like that, and how does that translates into your conversations that you have with your merchants?
Oh, you know, great segue. The whole idea with Katapult Pay was to demonstrate to those retailers, especially the retailers that were kind of on the fence about lease-to-own. You know, I'll tell you a conversation about a major hardware company who doesn't have lease-to-own, and I have had numerous conversations with them directly, and, you know, it's like, "You know, you charge too much. I don't think my customers will pay this." You know, he gives me a lot of excuses around that. And so now what I'm gonna have is the data to go back to them and say, "Look, not only do your customers shop at your store, they're leasing through me, and here's what they're buying," right? And so they'll be able to see that, you know, the customer is in their store.
I mean, this is always something for years, you know, I've been in the business since 2013, I would tell people, I was like, "People are shopping in your store. They're lease-to-own customers. What happens is, when they don't have the financing option, you're not offering it, they're leaving, and they're going down the street." Right? In old, old days, they would go down the street to Rent-A-Center or Aaron’s. Now they are going to other retailers that offer lease-to-own. "So, you know, why are you missing this customer?" And so now I have more data like, that shows that not only do these customers shop in their store, they bought, and what they bought. So we're gonna use this as, as our, our...
The best scenario would have the, you know, Kat- the retailer on Katapult Pay, and a direct integration with that retailer so that customers know at checkout, if they're shopping in the store or if they're shopping on their website, that they can check out with Katapult. There's a no-credit option available. And then, you know, a waterfall integration, 'cause waterfall integration brings you those customers that are getting declined, but they need that stuff.
Okay, perfect. So turning to the customers or refocusing on the customers. So you have a great low-cost customer acquisition channel set up through your direct integration with the merchants. Are you working on any other customer-
We're doing something. Yeah, yes. The other one we announced was a partnership with Western Union. Western Union probably has very similar clientele to us, so we literally have a list of potential partners that we're going after that can help bring that, keep that acquisition cost down because, you know, I... You know, they're... You know all the online lenders, they pay $150, $200 per lead. You know, I don't wanna raise my price to be able to do that. I'd rather try to keep it down and try to find other avenues to bring customers in. So right now, we're really focused on what I call is expanding the pie of customers. How do I get more customers in our universe that can either shop at a retailer or shop on Katapult Pay?
And so Western Union was our first, I think, fairly large announcement. We're in beta testing right now, but we have a long list of potential other partners. And, you know, you think of other tax prep companies, and things like that, where it's the same demographic of customer that we're looking at. And all we want them to do is market us and merchandise us. Well, usually within their website or whatever, and then send it to us. We pay them a commission on the lease. It's not $150 you know, it's much, much lower.
But it also helps because if we're aligned with how we treat the customer, the customer sees, "Oh, this company brought me value in another way than I'm used to." So, that's the story we got to with the partnerships that we're talking to, and it's easy. It's just an integration and, or, or marketing, and, you know, an SDK that comes over to us, and we do the lease. So we're... That's our direct strategy. We're doing some testing on direct-to-consumer, just, you know, traditional, you know, click-type but looks.
But it's, like, it's not even a rounding error on any number, I think, about the amount we're doing, which we just want to see, you know, can we have a message out there that, you know, think about, you know, the, the universe of people that are online, right? Like, if you say, "How many people need a durable good?" The number goes down, let's say 30%. I'm, you know, making this up. And then if you say, "How many people need a, need a durable good and don't, don't get approved for credit?" The number is even smaller. So how do you identify that little sliver of people that need a durable good and don't have the credit to do it?
Identifying those people, I think, is where we're investing in marketing tools and talent to help figure that out without going into the $150-$200 acquisition costs, because I don't want to raise price.
Right. Perfect.
You know, our marketing efforts have evolved as well. That we are very similar to how we're doing underwriting, that it's a more surgical, targeted approach. Same thing now with the marketing, is going after those that have been dormant for a while, those that have walked away from their cart-
Right
... you know, kind of things that you're seeing in retail all the time.
Okay.
Yes. For example, we did a test recently where we tested with, you know, Google and with Apple, and guess which one performed better?
I would say Google, so I'm gonna flip and say, Apple.
Google.
Nope.
Oh, it is Google. Oh, no. Okay.
It was, like, almost, like, 3x better-
Yeah.
Huh, interesting.
Than Apple.
It gave us more data.
Yeah.
Because, you know, the thing with marketing, to make sure it's getting a return, is you want to follow what the result is, and Apple had less ability for us to really be able to see what's happening to those consumers versus Google gave us a lot more-
Interesting.
Right.
Interesting.
There's a whole conversation there, I'm sure.
Yeah.
I do want to pause, see if there's any quick audience questions. No?
I had a quick one, just-
Yeah.
It looks like they go up to $3,500 on, I guess, credit or not.
Right.
Does everyone automatically get that?
No
... or do you have to be inserted?
It's based on our underwriting algorithm, and so, you know, if somebody's... You know, we have almost similar to a FICO score, but it's a score developed by a lot of different data providers that we've brought our own algorithm together. So we've created our own, let's just say, FICO score. So if they're lower end of the FICO score, just like anybody... Or our score, we call it Zibby Score. That's our old name-
Oh
... if you remember. We call it the Zibby Score. If they're at the low end of the Zibby Score, we might give them $500 or $800. If they're at the high end, they'll get the $3,500. So it really depends on how comfortable we feel from an underwriting perspective about how much they'll get. And then we also ... To that point, though, what's interesting is that many times people have a cart built already when they apply. And so we do a lot of analysis after the fact and say: Did the person have to take something out of their cart? And maybe it was only $100. What's the difference between what we approved them for and what they were buying?
We try to make adjustments based on what we see, and go back in and adjust, maybe increase the credit limit a little bit to give them the room. You know, for example, mattress is probably... I would... I don't have the statistics, and I can't validate this exactly, but I think we're probably the number one mattress-in-a-box non-prime lender. And we have Purple, we've got Casper now, you know, going back to six years ago, we had GhostBed. We've been in the mattress business for a long time, and many of those mattresses are, you know, Casper—Purple is probably the one that's, you know, they're $1,500, almost $2,000. And if your average approval is $1,200, they're not gonna buy—they're not gonna be able to buy.
And so we do adjust things based on the type of product that they're buying as well to and the pay through, and we know that by product, pay through is different. So if somebody's buying a mattress, they're more likely to pay. Tires, love them. People pay for their tires and their wheels. Electronics, you know, do you need a 65-inch TV? Yeah, I do, but you know, to watch the Super Bowl, but if you have to figure out what you're gonna pay, are you gonna pay for your car, or are you gonna pay for your TV? So we see that in the product type, and we'll make adjustments on the credit lines based on that.
Secondarily, because we're predominantly online and have to be concerned about fraud, just because... Well, and I'd say, if you're approved for that limit, you're also going to be, potentially a second time around if you're approved $3,500 for a mattress, but then you're trying to buy electronics.
Right.
There is a difference category by category. We're kind of putting the underwriting rules in place so that as you're shopping in multiple places, it isn't an avenue to increase the fraud.
Right.
I guess just to follow on that-
Sure
... what percentage of your customers get the full $3,500, and have you seen that?
I don't know that number.
I actually don't know.
It's not, it's not a number I've focused on-
Mm-hmm
...only because our average order value, AOV, is $700... and so we just don't have that many people buying $3,500 worth of stuff, right? And so they might get it, and they can shop multiple retailers-
Yeah
... and get multiple things, but I don't think it's. I don't know what it is.
You know, our repeat rate is 51%.
Right.
So again, with this small $700, we're more concerned not that you're gonna max out on the $3,500, but they're coming back repeat times.
Yeah, I think that-
And that makes a big difference.
Yeah, sorry. I think what's really interesting, you know, 'cause I was in the brick-and-mortar space, the difference that you see online versus the brick-and-mortar space. And I remember after we got Wayfair, the first few months, I'm looking at the numbers, and I'm looking at the difference between approval rate and your order value, right? And if you're in store, it's like this, right? Why? Because you got a salesperson going, "Oh, you got approved for $3,500. Let's get you that dinette set that you looked at. You know, let's..." And then you're walking out with $3,500 worth of... What I'm theorizing is that the customer-
Mm
... online is buying what they can afford. And while, yes, we're marketing them, you know, it's much different than being in a store and a salesperson putting a lot of pressure on you to walk out with all this stuff. And so we see a bigger variance between the approval rate, the approval amount, and the order value. And so, you know, at Wayfair, it's, it's in the 600s. But yeah, we do get them to come back and, and do more. And so there's not been pressure to go to that $3,500 because of the product suite, we've had, and the customers shopping online aren't buying $3,500 worth of stuff. So that's why I probably have never focused on that number. Yeah. Thank you. Thanks for the question.
Thank you. We talked a little bit about your new relationship-
Mm
... with Synchrony Financial you announced on the third quarter call. That sounds really very interesting, very fascinating. If you can talk about that relationship and the benefits that that will create for Katapult.
Sure. Yeah, we're pretty excited. We've been working on it for years, since I left Synchrony. You'd think I would've been able to close that deal. And we're excited about it because they have so many retailers. I mean, when I was there, I ran the auto portfolio, you know. I had 18,000 stores. You know, and we were moving towards online as people were starting to move online. That was 10 years ago. They have continued to move online and do some interesting things. And so, you know, finally, they agreed that, you know, having us in their... So they built a waterfall because, you know, they get pressure, and trust me, I was there, I know. Every retailer wants you to approve 100%, and you don't.
So, you know, if especially in the tightening that we've seen from everybody in the last, you know, 18 months, you know, I'm sure there's retailers putting pressure on Synchrony and others to improve that approval rate. The only way you improve that approval rate is loosen up, right? So we're a good fit for that because what happens is, you know, somebody's pounding on the desk, going, "Hey, you know, 50% approval rate's not enough. I need it up to 60." Well, I've got a solution for you. Let's add Katapult. We can, you know, net-net, we can improve the approval rate because we're sending our declines to Katapult, and Katapult will approve...
You know, we approve, let's just say we approve 50%, 60%, 70% of the people that come through the waterfall, and then suddenly you have these the, the net approval rate or the, I guess, gross approval rate between the two companies is where the retailer is thinking it probably should be. And then it helps the story, you know, to what your earlier point about what do you tell a retailer is this is really incremental. They can see it because, you know, they had Synchrony, you know, they got a 60% approval rate. Suddenly, they're getting a 75%, 80% approval rate combined, and they can see what that incremental business truly was. And then they become big fans.
So this is just a way for us to get out there, have, you know, another company that has legitimized what we do and that we're fair and transparent. And, you know, I think they picked us for that reason, but they also picked us because of the technology and making sure that we could get into the waterfall, do the integration, you know, get the retailers added. So now we just gotta go out to the retailers that we know or we want, that are on Synchrony and say, "Hey, this is offered." And, you know, I think between their salespeople saying, "Oh yeah, you're, you don't like your 60% approval rate?
You know, I got the solution, and then our salespeople knocking on the same door saying: "Hey, we've got the solution to improve, to bring incremental business," I think it's a win, and it's gonna be a long-term good partnership for us to add a tremendous amount of merchants.
Okay, great. And, so I cover Synchrony and a couple of other credit cards, and we're just hearing tightening across-
Yeah
... the board, from the credit card. So I mean, it sounds like Synchrony adding you, it's in Synchrony's interest to drive more business at Katapult through this waterfall process.
Yeah. Yeah, I mean, it is to keep the retailers happy.
Yeah.
You know-
Okay
... and that's where their benefit is, and, you know, we're paying them a little bit too, but it's not a rounding error. For Synchrony, it's definitely not a rounding error. It isn't even a rounding error. But it's more to cover their costs, right? Because it's just an added benefit that they can go to retailers that maybe some other prime lenders, and when they are competing, they can say, "Here's something that we have.
Right. It helps them be competitive-
Correct
... to mark the merchant.
Yeah.
Yes. Okay, perfect. I mean, that, that sounds really interesting, especially as several of the lenders that I cover in the prime and near-prime space are tightening. Is there a pipeline of more of these potential opportunities?
Yes. Yeah.
Yeah.
I mean, we've talked to just about every, every prime lender. Some of them get it and want to do something. You know, mostly it's been positive. It's just, you know, how. And the other thing is, depending on how much durable goods they really do, you know. Like, for example, Synchrony, they're, they're—you know, at least when I was there, I don't know how they're organized now, they were organized by product, right? So you had the furniture guys, and, you know, I was auto guy, and you have the appliance people, and you have the clothing people and the jewelry people. Well, the clothing people—they probably will never even see the name Katapult. They don't care, right?
And so I think it depends on where their bread and butter is, and, you know, because we are right now beholden to durable goods, so if they do a lot of clothes, they do travel, they loan money for other things, you know, there's not gonna be a benefit there.
Sure. Okay.
That's probably the only reason why it's not like, why isn't everybody doing it right now?
Okay. Okay, that makes sense. Speaking about this dynamic of tightening, maybe if you could, from your vantage point, if you could describe how the macroeconomy is impacting Katapult. Are you seeing evidence of tightening above you that you're getting maybe a tailwind from?
So we have, you know, starting last year and again, early part of this year, we definitely have seen some tightening. You know, it's stayed fairly constant throughout the year, and we have a benefit of sometimes benefiting from a countercyclical market. But as I said earlier, we really believe that we have a balanced approach, that no matter what kind of economy is out there, that we can utilize that to our advantage and continue to grow the business, and it's a sustainable path for us-
Yeah
... going forward.
There's a report that everybody teases me about that I look at almost on a daily basis, that will show the flow of applications coming, and we basically separate them by the upper rung and the lower rung. And so just to see, are we seeing variances of customers coming in that are upper tiers versus the lower tiers? And so, we have definitely seen more customers coming in on the upper tiers, which indicates to me that the lenders are tightening, and then you hear about it. I mean, you know it.
Right.
They're tightening. And we saw it starting in October of last year.
Okay.
I looked at it just recently, and it's continued. It's not as... You know, during COVID, literally that graph, it's just like, you know, the red. It's red is the good ones and blue is the bad ones, or not bad ones, the lower rungs. And like, literally, it used to be this way, where you know, the good ones were down here, and when COVID happened, the graph went like this.
Yeah.
I mean, it just flipped, because everybody immediately tightened up, threw up these big reserves, and we saw better customers. And then, of course, customers were shopping at home, which was a benefit for us. So we're not seeing it obviously that dramatic, but you can see a little bit more coming in, especially in the last, four or five months.
Okay, perfect. We're just about out of time, but maybe just finally, if anything, so Katapult's having a lot of growth here, having great margins. What does Katapult need to do, if anything, in order to scale the business faster or-
Grow the pie.
Grow the-
Grow the pie, get more customers, and get more merchants. And I think we're doing a good job working with the merchants we have, like Wayfair and others. We just need to... You know, I, I think things are finally settling in retail where, you know, they had COVID, and then they had, you know, stores were not opening, and then they had shipping issues, right? And then they were worried about the consumer. And so things have kind of settled down from the retailer perspective, and we're seeing a lot more movement in some of the conversations we're having that, you know, we can get up that priority list, because that's all it is with them.
Yeah.
Usually it's, you know, "I got, you know, 100 projects. You know, how much is this gonna be worth to us?" Well, you know, 2%-3% can be significant. And if we could demonstrate that and continue to demonstrate that, which I hope with Katapult Pay we continue to show that, then you move up the priority list.
Yeah.
And that's what we're working hard on. And then, you know, showing that, you know, we're doing it the right way, and we're treating the customer right, so it's not gonna be a bad brand reflection on them. It helps in getting that word out. And so, you know, we were talking at our last board meeting about, you know, how do we get the brand name out there? And we've done some things in the past, but we really need to step it up just so that people know that, you know, we believe in the good. You know, seeing the good in people is good for business, and that's the way our culture is driven, that's the way our company's driven, and that, you know, reflects on the brands that we wanna sign up.
So I think that will make a difference. And it's just, you know, hitting the ground and keeping your head down and keeping, you know, talking to merchants and going to things like the Merchant Advisory Group, which, you know, just about every large merchant's at that one. And, you know, presenting there and talking about the story. And, you know, I gave a fireside chat with the head of Best Buy Financial Services.
Hmm.
I'm good at this fireside chat thing.
You are.
Um, and, uh-
That's great
... and not only is he not my customer-
Right
... Right?
Yes. Yeah.
I want him to be my customer, obviously.
Yeah. Okay.
But really, we didn't talk about us specifically, as much as we did how to do it the right way.
Yeah.
You know, literally, our booth was mobbed afterwards because they wanted to say, "How are you guys doing it the right way?" And there were some big names there, so.
Okay.
Our business is scalable with very little-
Yes
... future investment.
Yep.
I, I think as we continue to grow the top line, the discipline that we've shown managing the balance sheet, to continue managing our P&L and balance sheet, to be able to improve our profitability is going to be kind of the dual-edged sword for us.
Right.
You know, from a liquidity perspective, we're very well set for the future. You know, my focus, especially, is on making sure that we grow the top line and grow the bottom line at the same time.
Okay, that's great. Yeah, it's good to hear that the merchant engagement is increasing because it's... My bullish thesis on the virtual lease-to-own has been that there's this TAM that's just not being addressed.
Right.
I would figure in this environment especially, that the merchants would wanna drive more sales.
Right.
But if-
They always do.
Yes.
They always do. Like-
Yeah
... there's never an environment where a retailer goes, "I got enough business." Right? They're always struggling. So I think, but I think now, a lot of the noise that we've had in the past has got settled down, at least for now. So hopefully, some other world event won't happen or something like that. But, you know, they, they, you know, we're seeing a lot of changes. You know, Bed Bath & Beyond going out of business, but then Overstock taking them over, and, and they had a bunch of changes. So, you know, you gotta maneuver through those things, but just continue, you know, making the calls, having, having the conversations, and, and talking about how we do it the right way.
Okay, perfect. So we're about out of time, but if there's any last audience questions? Otherwise, we're good. Well, thanks very much for your time.
All right.
Thank you.
Thank you.
We appreciate it. Thank you.