Major renovations that cost thousands of dollars are usually not impulse purchases. But the home improvement industry still welcomes the speed and convenience that made buy now/pay later loans popular.
The US home improvement industry will reach $600 billion by 2025, according to Statista. Bigger fees come with bigger risks, which in turn adds friction to the financing application process. But as a BNPL loan gradually revolutionizing consumer financethe opportunities for BNPL specialists to bypass traditional private label credit card home improvement financing – including through wholesalers such as Home Depot and Lowe’s – are huge, according to observers.
While the credit card industry hasn’t taken a hit from BNPL loan growth, US consumer data shows that alternative financing vehicles are gaining momentum, said Jason Barro, partner at Bain & Co. and the founder of NPS Prism, a three-year-old. a benchmarking platform that uses extensive consumer data sets to assess a company’s performance in a variety of markets.
Since the start of the pandemic, the share of US consumers who say they do not have a preferred top-of-wallet card is 9.2%. Over the following three years, as BNPL loans soared in popularity, the share of consumers who were unfaithful to any credit card continued to increase, reaching 15.3% in June 2022.
Capitalizing on that trend, HomeAdvisor, a division of Angi Inc., last year partnered with Affirm to extend the BNPL model to home improvement projects ranging from minor home maintenance to major renovations. The approach requires users to fill out a short application — longer than a typical online BNPL loan — with live customer support available to help users navigate the steps from finding a professional to getting an estimate and completing the loan.
Wisetack, a San Francisco-based startup, is another player in the BNPL home improvement lending arena that aims to build scale by forming in-depth partnerships with platforms serving industry-specific verticals. The focus is on big ticket purchases which for home service loans go up to $25,000.
“If I own a plumbing business, I need to have a pathway where consumers can find me and get an almost seamless, instant BNPL loan,” said Bobby Tzekin, co-founder and CEO of Wisetack.
Typically, home improvement service providers refer customers to third-party lenders to seek financing. In contrast, Wisetack integrates BNPL loan offers and approvals directly into any service provider’s platform.
Wisetack has teamed up with Housecall Pro, Quik, and Mobile Tech RX to provide BNPL loans to independent electricians, plumbers, and heating and air conditioning providers. The process ensures end users stay on the original platform where they connect with professionals, agree on estimates and select financing.
In August, Wisetack became the financing arm of Thumbtack, a home services website that enables users to search, assess, and hire local vendors to work on everything from home improvement projects to legal services and event planning.
Tzekin, who has years of experience working in consumer payments – including seven years at PayPal in merchant solutions and stints at YapStone and LendingClub, where he was vice president of product – says Wisetack’s goal is to keep loan approvals and management closely linked to projects to better manage risk.
“We’ve built in a process to streamline the flow of getting estimates and approving loans that even includes ways to easily make changes in scope of work throughout the project,” said Tzekin.
Hatch Bank, based in San Marcos, California, is Wisetack’s partner for underwriting and securing loans; it sells receivables from loans to third-party credit buyers, Tzekin said. Wisetack works with platform partners to charge traders a fee to close deals. In the home services niche, merchants pay a 3.9% fee per transaction, Wisetack said.
“We measure risk for each project in real time, with data that tells us who the borrowers are and what they’re borrowing for, so we can price each loan appropriately,” says Tzekin.
Wisetack raised $45 million in Series B funding in 2021, bringing its total to $64 million since the company’s launch in 2018.