Credit card perks…without the credit card debt

The credit industry’s favorite acronym, BNPL—for buy now, pay later—is popular among younger consumers, with 37% of Gen Z adults and 32% of Millennials reporting that they’d used BNPL for purchases in the last month, according to a Morning Consult study cited by USA Today.

But the financial instrument is far from a panacea, with the same study finding that one-third of BNPL users have used credit cards to pay off their BNPL, “which could create a vicious cycle that’s hard to overcome,” Morning Consult financial services analyst Jaime Toplin told USA Today.

Credit Karma, meanwhile, found that in the last quarter of 2023, while debt increased for all Americans, it increased the most for Gen Z (19.39%) and millennials (13.4%).

One way to not spend more than you have, of course, is to forgo credit cards, and that’s the idea behind the startup Catch, a payment system that links to debit cards and bank accounts. Catch, which shoppers encounter with other payment options when they check out online, also offers an element of credit-card reward points—namely earning points on purchases that can be spent on future purchases.

It’s a new take on payments that also incorporates elements of loyalty programs. So we sat down with two of Catch’s founders to learn how it works, and why retailers like PacSun have signed on.

APRil showers: Nico Perdomo, Catch’s CEO and co-founder, who previously worked on BNPL efforts at Affirm, told Retail Brew that “credit cards generally work really, really well for high-income consumers.” But they work less well, he continued, for “low- and middle-income consumers who generally revolve on their credit card debt and pay insane interest rates north of 30% APR.”

Some merchants, meanwhile, feel like they’re over a barrel when it comes to credit card processing fees, which can run as high as 3.5%.

“Our whole vision,” Perdomo said, is “how do we give consumers and merchants the best of credit cards while removing all the pitfalls?”

A big difference between points shoppers earn with credit cards and with Catch is that with the latter, the points may be applied only to the same merchant where they were earned. So if you spend $100 at PacSun, which offers a 10% credit back for purchases, you’ll earn $10 that you can spend only at PacSun. (Catch’s logo, fittingly: a boomerang.)

PacSun, in turn, doesn’t pay Catch until that $10 is redeemed, and only on the amount the user spends beyond that. In other words, if a Catch user applied that $10 credit to a $50 purchase, PacSun would pay Catch’s commission, which is 5%, on $40, or $2.

Retention seekers: While most of Catch’s ~70 retail partners offer the perk of 10% back, Perdomo said the company was originally pitching the retailers to give back just 3%, the thinking being that they would effectively be reallocating the fee they would have paid for a credit-card transaction.

“We found that retailers are much more willing to be much more generous with their consumers,” Perdomo said.

The reason, Perdomo explained, is that Catch can function as a loyalty and retention tool for brands.

“Many of them do 10% because they’re like, ‘Hey, that’s [a] 7% incremental cost for me,’” said Perdomo, referring to the amount over 3% they’d otherwise be paying for a credit-card fee. “It’s cheaper than me going and running a Facebook ad or a podcast ad or whatever it is to get that customer to come back.”

And one way Catch helps vendors get customers to come back to is by thinking strategically about how soon those credits expire.

Cosmetic differences: Beauty brands that Catch partners with tend to “have a specific goal around replenishment,” explained Denia Ebersole, Catch’s co-founder and COO. “They need to get someone to come back after 90 days because that’s when their product runs out. And so we’ll work with them on what’s the best strategy.”

Ebersole said that beauty brands tend to have a three- or four-month expiration for their credits because that’s when a mascara, lipstick, or anti-aging cream might run out. That means, she explained, that the brands can send Catch users SMS or email reminders to use their soon-to-expire credit right around the time they’d need to reorder.

It’s “like a standard loyalty program” that results in “meaningful improvements in their purchase frequency and their repeat rates,” Ebersole said.

Catch’s novel approach can present a challenge when it comes to simply describing it.

“It is a little bit of a Frankenstein child of payments, and loyalty, and ad platforms,” Perdomo said. “So it’s hard to give a one-second elevator pitch.”