Wanted: shoppers with lousy credit.
Retailers including Walmart, Forever 21, Urban Outfitters and thousands of others are suddenly hot for the 68 million Americans traditionally considered risky borrowers because of their track record of not paying their bills or their lack of credit histories, including credit-card-adverse millennials.
Enter a bevy of fintech companies that have sophisticated algorithms to better predict who will pay up and shoppers with bad or no credit are in high demand. The companies are also assuming the credit risk if customers default.
One newcomer, Zebit, generated $44 million in sales last year and is on track to reach $100 million this year, according to chief executive Marc Schneider, who is raising $20 million on top of the $39 million Zebit raised since 2015.
Zebit, which bills itself as “the Amazon for the under-served,” is spending hundreds of thousands of dollars on marketing this year to differentiate itself as the only company targeting risky consumers that is also not “predatory.”
But it has plenty of competition for the mantle.
In February, Walmart inked a deal with Affirm, a payment option at checkout that allows shoppers to pay for purchases in installments, from three to 12 months, with the interest disclosed as a dollar amount rather than as a percentage.
Affirm is among a growing group of companies, including Afterpay, QuadPay, Klarna, UpLift and Splitit, that claim to be more transparent about the fees and interest they charge.
They are touting a similar business model — layaway with a twist: Shoppers get the goods up front instead of after they finish paying.
The race for risky shoppers is being driven by the strong economy, industry experts say.
“The prime market can only grow so much, so lenders are interested in getting more consumers into the pool, especially when times are good,” Ted Rossman, an analyst for CreditCards.com, which tracks the card industry.
Of course, the new system comes with a cost.
“Most of these programs are looking for consumers who are bad at math,” payment card consultant Robert McKinley of RAM Research told The Post. “They generally charge 20 percent to 30 percent more for merchandise and may carry additional, hidden costs.”
Zebit says it makes no secret about the fact it’s not a discounter.
“We tell the customer ours is not the best price,” Schneider told The Post. “Our biggest challenge is overcoming the perception that this is too good to be true because the whole industry is about bait- and-switch.”
On some items, particularly electronics, it charges significantly more.
A series 4 Apple watch costs $517 from Zebit compared with $399 from Apple, while a 150-piece Stanley tool set costs $117.99 on Zebit compared with $99.99 at Walmart.
Consumers also have to disclose personal information, including their income and employment, to start shopping, which Zebit says it needs to help keep defaults in check.
“That’s our secret sauce,” said Schneider, who touts Zebit’s default rate at between 12 and 15 percent compared with typical subprime rates of up to 50 percent.