Afterpay has been one of the most talked-about market movers in Australia over the past few years, and this year more than ever. Many seasoned and also inexperienced punters have managed to bag themselves an incredible 10x gain on its early value. The rise and fall… and big rise again of Afterpay has captivated industry leaders around the world, especially during a year where not a lot was going up.
But… is it the best of the Buy Now Pay Later (BNPL) services? Why is it popular? Who are their competitors? What competitive differentiators have come about as a result?
These are some of the questions I can take you through.
As the name suggests, Buy Now Pay Later services allow consumers to buy products and delay payments. For some goods, this payment is made over a few weeks, and for larger purchases, it may be longer. Most providers don't charge interest on goods, instead charge fees for occurrences such as late payments.
These payment models are offered by leading providers in Australia such as Afterpay, ZipPay, Klarna and Humm. Such arrangements are also now offered through leading credit networks such as Mastercard and Visa.
So what is the fuss about? Let's start with Afterpay.
Afterpay is one of the largest BNPL services in the world. It has gained an incredible amount of traction amongst retailers and consumers over the last few years, and it seems like this unicorn is only getting bigger. On the Aussie stock market, Afterpay has seen nearly + 8800% change since it's shares landed on the boards of the ASX in May 2016, fuelling its appeal.
Positioning itself as a millennial or Gen Z service, its popularity comes as being one of the first in Australia to allow younger shoppers to budget costs by making fortnightly payments, and giving them access to goods on demand rather than waiting for their next paycheck.
This has effectively provided retailers with new lines of customer acquisition, with bottom-line revenue also benefiting from increasing conversions, basket sizes and general overall sales.
The more consumers there are, the more likely Afterpay can win over bigger merchants. That's a cyclical business model that breeds growth.
This means the more merchants that are on their platform, then the more likely a customer is to pick Afterpay, because there is a wider choice.
So what about Afterpay as a BNPL service?
Like all BNPL services we cover, there are no interest fees. This means that provided you make your payments on time, the price of the item, is the price. No more, no less.
The payment term for Afterpay is 8 weeks, billing every two weeks and this is not able to be changed. There are no upfront or ongoing fees, however there is a $10 late payment fee, plus an additional $7 fee if it is not paid after 7 days.
The 8 week period is designed to keep the consumer in mind, meaning lower payment values over a slightly longer period of time compared to some of our other providers we cover in this article.
Like all BNPL, they reserve the right to report bad credit to creditors, however, a credit check is not required to sign up to use Afterpay.
Overall, Afterpay has an appealing consumer agreement and has proved to be one of the most popular in the Australian BNPL market.
So how does it shape up to some of its competitors?
Let's take a look at ZipPay/ZipMoney next.
Launched in 2013, Zip Co. provides shoppers with two products in its digital wallet, both in the form of interest free accounts. Zip Co is also the owner of Pocketbook, one of Australia's largest non-bank financial apps.
ZipPay is an account for everyday transactions, providing an interest free payment model to the end of each month, and then implementing a $6 fee if there is still an amount owing.
Customers on ZipPay must make a $40 minimum contribution to their account, and a further $5 if a payment is not made 21 days after its due date. This extends to $80 for those with an excess of $1500 owing on their accounts.
ZipMoney operates on much the same model, except customers have up to $30 000, and 6 months to pay off their accounts, and across both ZipPay and ZipMoney, payment schedules are flexible and can be altered.
The biggest difference we can see here between Zip and Afterpay, are the added fees included in the former.
Other differences include flexible payment schedules, but this could also lead to bad debt accumulating more frequently across its customer base.
For it's target market, and for many of its customers in general, incremental fees, although small, could be the difference between a customer signing up for Afterpay over ZipPay.
Next we have the smooth talking Swedish BNPL import, Klarna.
Klarna made a big impression in the Australian retail market with their bold and memorable marketing.
If you haven't seen some of their 'smooooth' adverts, then have a look on Youtube. They are great.
Towards the back end of last year, Klarna raised a mega $650 million round at a $10.6 billion dollar valuation (post-money). This raise alone gave it the title of being the highest-valued fintech in Europe at the time.
Like its competitors, Klarna offers an alternative payment method for ecommerce retailers, with re-payments spanning over 3 or 4 payments.
In Europe, there are said to be less credit cards than say, the US or Australian markets. A major contributor to its snowballing popularity for those who do not want to pay fees that come with revolving lines of credit.
Their business model operates on the basis that it's merchants get paid when the first transaction occurs, with Klarna then managing the transaction and associated fees, while also generating revenue from late fees, much like the others.
Interestingly enough, Klarna charges their merchants a 2.2% fee, compared to Afterpay's 5%.
Something different that's emerged in the US is a program called Vibe. This essentially works like a frequent flyer program would, allowing loyal customers to build a bank of points which are then redeemable at selected retailers.
The maximum loan amount for Klarna is $1,000 and is interest free and has a "slack period" of 2-7 days when a payment is missed to give the consumer time to make that payment and avoid the late fee. Klarna also claims there are no high charges at any point when using the service.
Klarna is a strong player in the BNPL field and it will be something to keep an eye on over the next couple of years.
Now we come to our fourth and final player in this comparison piece, Humm payments.
Formerly known as Oxipay (FlexiGroup), Humm offers yet another alternative to the standard transaction process for online shoppers.
Some notable features include its variable purchase amounts, which can range from $1 to $30 000 and come in the form of two wallets, just like ZipPay and ZipMoney.
You can make 5-10 repayments on smaller ticket items, while for bigger purchases repayments can span all the up to 60 month repayment periods.
Humm offers flexible payment options, with customers able to schedule repayments to land on the day they get paid their wages, for example. For the targeted BNPL markets, this might be a highly desirable feature.
For smaller purchases, there are fees of up to $8 a month, however if you can make less than 5 repayments, then there are no fees altogether.
For the bigger purchases and higher lines of credit, customers can expect fees ranging from $35 to $90 in establishment fees and then a further $60 in fees, but like most loans, this is dependent on the loan period and loan amount and does have a capped interest rate.
So there we have it, a comparison of the main BNPL players in Australia.
Goes without saying I am not a financial advisor so I cannot confidently point you in any one direction, as each provider seems to be set up to be able to meet the varied requirements of today's customers in an ever-changing online world.
As always, look out for the fine print, hidden fees and make an educated decision of whether it's financially more sensible to make the one payment, or make a few smaller ones.
If one provider is more popular than the other, it's usually for a reason, but still good to do some deep digging.
The BNPL market as a whole is ever-growing, and by the time of publishing this article, a couple more would have popped up in Australia, and many would have done the same across the world.