- Key insight: Synchrony is making an acquisition that should help its merchant partners do more business with consumers who have low credit scores.
- Forward look: The credit card lender plans to allow Versatile Credit to operate as a separate, 60-employee entity within the larger company.
- Expert quote: “I think we will see more of this kind of partnership in the future, where fintechs step into the consumer transaction, make debt available and eliminate friction from the process,” said lending expert David O’Connell.
Synchrony Financial has acquired the financial technology company Versatile Credit, which enables retailers to offer credit to consumers with tarnished credit histories, the companies said Wednesday after the market closed.
“This is a product and a capability that our merchants want,” Maran Nalluswami, chief strategy and corporate development officer at Synchrony, told American Banker. “We have 400,000-plus merchants, and this is a product that’s going to help their consumers to get more credit.”
Stamford, Connecticut-based Synchrony partners with merchants — which range in size from big-box retailers to small businesses, such as veterinary clinics — to offer co-branded credit cards and other forms of consumer credit. The merchants often decline credit to customers with low FICO scores or no score at all. Sometimes the consumer has to fill out a separate application for credit from a subprime lender.
Versatile Credit addresses this issue by matching consumers with lenders that are willing to lend to them. It also handles the communications between the merchants, lenders and consumers, and does so quickly at the point of sale.
“The most simplistic way to think about it is, it allows a merchant or provider just to say yes more to their consumer,” Nalluswami said. “That will allow them to sell more products and have more loyalty.”
David O’Connell, a lending expert who is the founder of O’Connell Insights, said merchants often get frustrated when they can’t offer credit at the point of sale because the consumer’s credit score is low.
Also, “the ability to get credit over your phone and buy now/pay later has increased consumers’ expectations that even when they know they are risky credits, they should be able to borrow, at some interest rate that they might or might not fully consider, and with remarkable convenience,” O’Connell told American Banker.
“So merchants are frustrated about being unable to meet some pretty high expectations: Buy something, buy it with convenience, with credit, and with convenient credit. Providing capital isn’t their business, so this is a distraction and a productivity drain on their personnel. The fintechs are smartly stepping in here.”
Synchrony, which has more than $119 billion of assets, has been a member of Versatile Credit’s lender network for the past 15 years.
The fintech has “built a system with reporting capabilities and features that have tied together almost 35 lenders,” Nalluswami said. “The merchant and the provider have the ability to choose, depending on what their needs are.”
Versatile Credit takes a “holistic view” of credit, according to its president, Vicki Turjan. Different lenders go after different slices of the FICO spectrum, she noted.
“We seamlessly embed them into the business processes of our merchants to allow them to — in a fast, effective, compliant manner — offer their consumers credit options across the entire FICO tier,” she said.
Turjan describes Versatile Credit’s work as similar to plumbing.
“On one end of the pipe are banks, and at the other end are the merchant and the consumer, and we facilitate that flow of information needed to originate those loans,” she said. “We take the burden of technology and embedding the credit origination process into those merchants’ key business systems, like point of sale and customer relationship management systems.”
Without this virtual plumbing, a merchant would require its customer to fill out a Synchrony credit application app. If Synchrony declined the loan, the customer would have to fill out another lender’s application. And if that application was denied, the customer might be offered a third application for a lease-to-buy arrangement.
“We make a single app that matches that customer with the best banking product they’re able to achieve,” Turjan said.
Synchrony has been getting requests from merchants for this kind of capability, Nalluswami said.
“When you’re at that point of sale, you want to be able to make it a delightful experience,” he said. “They want to be able to say yes, to make the sale and to have a happy customer, and many times, drive loyalty.”
Often in a merger, employees of the acquired company are moved around and pulled into different functional areas, Nalluswami said. But following Versatile Credit’s acquisition, the Mechanicsburg, Pennsylvania-based firm will continue to operate as a separate, 60–employee entity within Synchrony.
“Vicki and her entire team are going to stay together so we can just hit the ground running day one, Nalluswami said.”
Synchrony also plans to invest in Versatile Credit to help the team innovate quickly, Nalluswami said.
In the bigger picture, demand for consumer credit at the point of sale keeps rising, even as household debt continues to grow, O’Connell noted.
“I think we will see more of this kind of partnership in the future, where fintechs step into the consumer transaction, make debt available and eliminate friction from the process,” he said.