What’s old is new again. If you talk to anyone who grew up during the Great Depression, you’ll find they prefer paying in cash. Debt gave them hives. Hard times have a way of breeding financial responsibility.
In a recent interview on the ProfG Show podcast, Afterpay Founder & CEO Nick Molnar described how his platform is tapping into a modern twist on this Depression-era frugality. And he argues that retailers who don’t tap into this today will miss an opportunity to forge relationships with consumers who will represent roughly half of all consumer spending within the next decade.
Molar said credit use was down 21% year to date through May, according to Visa data. Debit usage rose by 12% over the same period. Molnar said 90% of Afterpay users eschew credit cards in favor of debit.
He also recently chatted with PYMNTS.com CEO Karen Webster, where he similarly made the case that BNPL (buy now, pay later) is moving into the financial mainstream.
In his telling, the world is moving from a credit-based economy to a debit-based economy. And the drivers of this are younger consumers. Think GenZ and millennials, who beginning after the last financial crisis in 2009, made the choice to, as Nick puts it, “spend their own money. And the pandemic has accelerated that debit preference.”
Afterpay basically provides a modern platform for an old-fashioned payment structure — layaway. A consumer with an Afrterpay account goes to a retail partner’s website and makes the purchase there, then selects Afterpay. So the retailer owns the customer. The consumer then pays it off in four equal payments over eight weeks. Consumers are suspended from the platform if they miss a payment. No usurious fees. If they use the platform responsibly, they earn loyalty points over time.
What’s in it for Retailers?
The benefits to retailers are pretty straightforward. Afterpay assumes all the risk in the transaction. It pays the retailer upfront, then collects the purchase over four installments. In the meantime, it serves as a lead generator for retailers while growing their average basket size. In Australia, where the business was founded, Afterpay is the second leading traffic driver to retail partners after Google.
Rewarded by Investors
Afterpay was launch in Molnar’s native Australia but he moved the business to San Francisco to scale. The company is publicly traded, and its share price trajectory shows it is among the clear winners during the panemic. Its share price shot up 354% to 93.15 between April 30 and December 17. The company’s market cap currently tops $25 billion.
The e-commerce angle no doubt drove much of its growth. But investors must also be betting on the anti-credit trend that Molnar is pitching.
Are Small Merchants Missing Out?
Afterpay and most others in the BNPL industry sell primarily to larger retailers. Given the scale they are looking for, it doesn’t make sense to sell to single location merchants. However, smaller merchants can and do sign up for the service, or those of Afterpay’s many competitors. This gives them access to whatever network of customers the platform has accumulated. Afterpay currently has 11 million consumers using its platform.
In September, PYMNTS.com wrote about how BNPL can be a tool for smaller merchants to drive customer engagement.
BNPL’s Global Appeal
BNPL is generating investor interest across the globe. Klarna, a Swedish BNPL platform, has a valuation topping $10 billion. And Tabby, a BNPL platform launched in 2019 and operating in the UAE and Saudi Arabia, just raised a $23 million Series A round. Similar to Afterpay, Tabby works with retailers to offer their online or in-store customers the ability to defer paying for their purchases for up to 30 days or to pay in four equal monthly installments. The platform works with 500 retailers, including both large global (including Ikea) plus regional brands.
Constricted consumer credit and the move to eCommerce and contactless payments during the pandemic has also given Tabby a boost.
This is what Hosam Arab, Tabby’s co-founder and CEO told Menabytes recently. “The shift to online retail has never been more evident, and with it, consumers are becoming ever more demanding as they actively seek convenience and reliability in their shopping experience. And this includes how they pay for their purchases.”
