Debit Goes Digital

Debit Goes Digital

A new payment method is on the rise, and its rewards are two-sided.

One Minneapolis startup is stirring interest among merchants, consumers and funders with its next-generation payment platform. Designed to reduce merchant fees while rewarding consumers, Sezzle’s platform is raising the bar for payment processing.

Calling itself PayPal 2.0, Sezzle is an e-commerce payment platform that works like debit but rewards like credit. Its platform enables consumers to pay businesses directly from their bank account using bank authentication technology, while earning 1 percent cash-back on purchases (see “How It Works”).

“There are a lot more fees and fraudulent transactions with online payments,” says Paul Paradis, Sezzle’s chief business development officer. “With Sezzle, you verify your identity by logging into your bank account through our secure platform.”

Sezzle uses ACH payment processing, which it refers to as digital debit, bypassing the middlemen to reduce merchant processing costs by up to 50 percent. (Merchants typically pay 3 percent plus 30 cents per transaction in processing fees, a hefty expense for small businesses.)

The company was founded in early 2016, and officially launched with its first pilot e-commerce customer in February. As of mid-May, Sezzle had 10 pilot merchants—half of which are local companies—and can process payments with 19 of the largest banks in the U.S. including Wells Fargo and U.S. Bank. “We’re still working out the kinks,” says Sezzle CEO Charlie Youakim.

In the year before launch, Sezzle focused on building its platform, securing pilot customers and raising money. The company was a finalist in the 2016 MN Cup startup competition, winning a $10,000 special award from Securian Financial Group for innovative technology shaping the future of financial services. In November, the company raised $1.85 million in seed funding, surpassing its goal of $1.5 million, and shortly thereafter secured a partnership with Shopify, a Canadian e-commerce software company, with over 375,000 stores in its network.

Youakim and his team of seven are working on adding an alternative credit option, giving consumers the option to buy now and pay later through interest-free installments. While merchant processing costs are a concern, increasing sales and basket sizes are of higher importance to merchants, says Paradis, and an alternative credit option could be one solution. “The feature is currently in test mode, but we’ve seen a boost in click rates,” says Paradis. “We’re trying to figure out what gets consumers interested.”

As brick-and-mortar stores struggle and e-commerce continues to grow, Sezzle appears to be well positioned. “And pretty soon there’s going to be a push for real-time payments; it’s already happening in Europe,” says Paradis.

In the meantime, Paradis says their team will continue optimizing its platform and adding merchants, with hopes of securing a large-scale flagship merchant in the near future.

How It Works

Sign up Select Sezzle as your payment method at checkout and enter your mobile number. You’ll receive a text with a one-time password that you enter in the checkout window, then you are asked to create a four-digit Sezzle PIN.

Link your bank account During initial setup, select your bank from a list of participating banks. Login to your bank using your existing bank login credentials—just like visiting your bank’s website—and choose the account you would like to pay from.

Use Sezzle at checkout Once your account is linked, paying is simple and safe. Enter your mobile number and PIN and your purchase is complete.

Get rewards You receive 1 percent cash back every time you pay with Sezzle.