Minneapolis companies Sezzle and CartStack seek growth through partnership

Two Minneapolis companies are teaming up to help e-commerce sites with a pair of sticky challenges: closing the sale as increased competition lavishes shoppers with more options, and reaching consumers who lack access to credit.

Sezzle, started in 2016 by veteran entrepreneur Charlie Youakim, and CartStack, started about five years ago by West St. Paul native Brett Thoreson, both seek to tap an expanding market of online sellers.

Sezzle's product, an online payment plan, splits a customer's order total from a participating e-commerce site into four installments spread over six weeks without charging the customer interest or fees.

Youakim, Sezzle's chief executive, said users are often younger people who either don't want a credit card or don't qualify for one due to their age or other circumstances. About 60 to 70 percent of people who sign up to use its payment options are approved, he said.

CartStack offers strategies to e-commerce sites, such as follow-up e-mails, to woo customers who have placed items in virtual shopping carts and exited before making a purchase, a problem the industry calls cart abandonment.

The Sezzle-CartStack partnership started about five months ago when the two companies realized their products both benefit e-commerce sites, Thoreson said.

Now, when CartStack sends e-mails to customers who abandon their cart, they highlight Sezzle's payment plan options, nudging customers to reclaim their cart. In return, Sezzle touts CartStack's strategies to its 180 or so e-commerce merchants.

"We both help drive sales," Youakim said of the partnership. "We think it makes sense. It's really low effort for us."

While it's too soon to tell whether the partnership has generated more sales for e-commerce merchants or more use of Sezzle's payment plan, preliminary results suggest "it's going to work," Thoreson said.

Before starting Sezzle with co-founder Paul Paradis, Youakim founded Passport, an app that streamlines mobile payments for parking and transit. Though he is still a shareholder in the company, he moved on in December 2015 to start Sezzle.

Youakim said he raised nearly $2 million in 2016 to launch Sezzle at the beginning of 2017, but the company's original idea, which gave rewards to those paying with a debit card, struggled. So Youakim changed course.

Sezzle's flexible payment plan strategy came from noticing successful installment plans in Australia and Latin American countries.

Youakim said Sezzle launched the interest-free installment product about six months ago and saw immediate success. Fees are paid by the e-commerce sites.

"The idea … it's always revolved around helping merchants," Youakim said. "We found the winner."

Sezzle has around 20,000 users and 180 e-commerce merchants who mostly sell apparel. Youakim said Sezzle is aiming for consumer numbers in the "hundreds of thousands" and projects 1,000 participating merchants in the next year.

He also said he hopes to double Sezzle's 15 full-time and part-time employee team in the next 12 months.

Youakim said startups need significant financing to break into the financial technology or payments industries, and companies in the credit industry face extensive federal regulations.

Sezzle avoids these regulations because the company charges fees to the seller, not to the consumer, and payment plans do not exceed four installments.

If a user can't pay an installment, he or she can adjust the due date of the remaining installments once for free, and each following adjustment is $5.

If users bounce a payment, they are charged a $10 penalty.

About 500 e-commerce sites are CartStack clients, about 20 percent of them hotels.

They pay a monthly subscription to use CartStack technology to send customers e-mails or other notifications when they leave a site before completing a transaction.

On the average e-commerce website, Thoreson said, CartStack brings back about 15 percent of lost sales.

Before CartStack, Thoreson said he worked for a large e-commerce retailer and noticed the success of their cart abandonment campaign. A couple of years later, Thoreson started a web development company, and a few of his e-commerce customers told him they wanted to address cart abandonment.

Thoreson said he and his co-founder worked full-time jobs and spent late nights working on CartStack until they built it into a sustainable business.

"It's definitely gotten more competitive since we've started," he said. "However, the e-commerce industry … is exploding."

Michael Noble, the CEO of Minneapolis-based Apruve, a buyer-to-buyer credit company started in 2013, agrees.

Startup sites are looking to create alternative financing models that traditional banks can't offer, he noted.

They also face more cart abandonments as e-commerce competition spikes. That's creating opportunities for companies like Sezzle and CartStack.

"I don't see it slowing down anytime soon," Noble said. "The entire industry is being upended with better, faster processes."

Olivia Johnson is a University of Minnesota student reporter on assignment for Star Tribune