One bad experience is often enough to taint a consumer's perception of product warranties forever: Maybe you broke a $600 blender, only to learn that the $50 warranty plan just covers manufacturer defects. Or perhaps in an attempt to repair a broken smartphone screen, you were told your device had water damage and wouldn't be covered. And that TV you bought five years ago because "'Shrek' needs to be watched in 4K to be fully appreciated"? Yeah, you'll need to find the receipt if you want it repaired.

Extend, a nearly 2-year-old startup, is aware of these pitfalls and wants to rehabilitate the perception of warranties. It aims to do for warranties what Affirm did for consumer point-of-sale financing. That entails making APIs accessible and convenient for smaller retailers, which have historically been locked out of the warranty market. Just as Affirm and other "buy now, pay later" companies have benefited from pandemic tailwinds, Extend aims to capitalize on the shift to online shopping at a time when consumers are looking for ways to stretch their budgets. But to do that, Extend needs to convince customers that it isn't the same old warranty business hiding behind shiny APIs.

To that end, Extend built a chatbot, Kaley, which settles 98% of claims in under 60 seconds. Warranty purchases are tied to customer accounts, so there's no need to provide receipts as proof of purchase. And while many legacy warranty programs mail customers a prepaid debit card as compensation — a process that can take well over a week — Extend emails codes that allow customers to purchase a replacement product directly from the original retailer.

Extend also designs its warranty plans to support a higher claim approval rate. "It's really important not to find ways to deny claims," Rohan Shah, the co-founder and SVP of business development and partnerships at Extend, told Protocol. "Obviously we need to monitor things like fraud, which will exist in any sort of claims process [...] But our goal is, if a customer has a problem, and that problem is covered under the terms and conditions of the plan they purchased, their claim should be approved."

Before it could even attempt to restore consumer trust in warranty programs, however, Extend needed to bring merchants onboard.

A significant part of that pitch is access: Extend acts as an intermediary between online merchants and insurance companies including AIG, Fortegra and Dealers Assurance Company. It isn't worth the time or investment for large insurers to underwrite a Shopify merchant generating $25,000 in annual sales, but once Extend pools enough of those vendors together, it becomes an attractive opportunity.

"The legacy players have been focused on the top of the market — the top 25, top 50 merchants in terms of gross merchandise value," Woodrow Levin, the co-founder and CEO of Extend told Protocol. "There are hundreds of thousands of companies that are being underserved — we want to go after that market."

Extend has already gained significant traction, attracting big names including Peloton, iRobot and Advance Auto Parts. It also offers integrations with ecommerce platforms Shopify, Magento, BigCommerce and SalesForce Commerce. And the young company has already managed to raise over $56 million. The bulk of that funding came from a $40 million Series B round in October led by Meritech Capital. (Its two most direct competitors, Clyde and Mulberry, have closed $14 million and $10 million Series A rounds respectively.)

Like Affirm, but for...

Extend's distribution comes in the form of APIs that can be plugged into existing online storefronts. Go to purchase a BlendJet, for instance, and you'll be presented with the option to add a one-, two- or three-year accident protection plan through Extend. It mirrors the consumer point-of-sale financing interface popularized by Affirm, AfterPay, Klarna and PayPal.

The thinking is similar. Shah noted that, as with warranties, the "buy now, pay later" model was only available to the biggest retailers in the brick-and-mortar shopping era: Layaway offered the same basic value proposition as Affirm decades ago, but it was largely confined to stores like Macy's and Nordstrom. It wasn't until Affirm digitized the business model that it became widely accessible to retailers and customers alike. In its IPO filing from November 2020, Affirm disclosed that over 6,500 merchants use its platform, helping it reach over 6.2 million customers and generate $509.5 million in annual sales.

"If you look at the ecommerce landscape, payments was first transformed by an API-first company called Stripe — before that, you had to do deep one-off integrations into the gateways, and it was very onerous," Levin said. "Consumer point-of-sale financing has also been transformed by API-first companies. So we said, 'What's the next tool in modern ecommerce that the biggest companies are using today, and is very popular offline, but hasn't yet moved online?'"

Levin argues consumer financing companies have done some of the heavy lifting in terms of normalizing the use of third-party APIs. "We're extremely fortunate to have had companies like Affirm, Bread, Klarna and Afterpay [that] inculcated merchants with the belief that allowing another company to put something inside of your customer check-out journey is OK," Levin said.

PayPal, which also offers point-of-sale consumer financing, invested in Extend's Series B funding round. This could prove to be a key strategic relationship for Extend, given PayPal's reach across the ecommerce ecosystem. "You can imagine a world where we integrate with PayPal into that checkout flow," Levin said. "[This would] create a tremendous amount of merchant relationships, where all they have to do is check a box and say, 'Yes, I want to offer extended warranties.'"

Taming the three-headed dragon

At the end of 2019, Extend made a key hire in Rob Pfeifer, who was one of the first 10 employees at Affirm (which still went by Expedite.cc when he joined). By the end of his 6-year tenure at Affirm, Pfeifer had served as both chief risk officer and chief revenue officer. Now serving as Extend's CRO, he focuses on building out the company's analytics capabilities, particularly in terms of price optimization and risk modeling.

One of the things that excited Pfeifer about Extend was the company's ability to attract larger merchants. "One of the big challenges we had at Affirm was going from smaller merchants up to larger ones. Part of the reason we weren't there is enterprises and larger companies have so many different needs and capability requirements from a tech and data perspective than smaller guys," he told Protocol.

But for all the similarities between Affirm and Extend, there are still significant challenges unique to the warranty space.

For one, lending can exist almost entirely as a digital product, but the warranty business involves the replacement, repair and fulfillment of physical goods. Extend is therefore selling a more differentiated product than Affirm, which could make it harder to scale — financing a muffler or a Rolex is largely the same process, but repairing them requires entirely different capabilities. This doesn't entirely preclude merchants from working with Extend, which contracts repair services from ServicePower. Peloton, for instance, operates its own repair network even though Extend handles its back-end claims systems. Smaller retailers may be more inclined to just replace rather than repair broken products, though this could drive up warranty costs.

Extend also needs to balance three conflicting variables: To improve the customer experience, it needs to make it easier to get claims approved, but that raises the expense of a warranty program. Extend could pass the expense onto customers, but that would make warranties less attractive and less of an upside for vendors. Alternatively, it could eat into its own margins and take on higher expenses than competitors.

But the company isn't beholden to the same constraints as industry incumbents, at least in management's mind. "We think with better data modeling and better customer understanding, we can do a better job of pricing, which means we don't need to get into the schemes that the incumbents have played historically," Pfeifer said. Whether Extend continues to add big-name merchants to its platform will be a testament to this strategy, and to the fortunes of the point-of-sale warranty startups at large. And given the changes in consumer behavior brought on by the pandemic, the stakes might be higher than ever.

Correction: This article was updated Jan. 7 to reflect the age of Extend and its list of partnerships.