23rd April 2021
Buy Now, Pay Later – The New Way To Shop
Buy now, pay later (BNPL) has now become fully integrated with businesses all around the world. Listed BNPL providers has seen massive surges of growth thanks to the pandemic’s effects on online shopping.
Afterpay, a leading BNPL provider currently based in Melbourne, has seen exponential growth since the beginning of the pandemic. Closing the March 2021 financial quarter with a strong operational performance, Afterpay reported underlying sales exceeding the prior corresponding period by 104% and is currently valued at $36.6 billion.
Now, Afterpay is considering expanding further - setting its eyes on North America, its biggest market. Afterpay’s strong operational performance can be attributed to the increase of sales by 211% on a local currency basis since December 2020 from North America, making the country the biggest contributor to Afterpay’s underlying sales. According to its business update for the third quarter of this year, shareholders are ‘increasingly becoming more globally focused,’ and will benefit from expanding to the US to accommodate the growing interest in Afterpay around the world.
Afterpay's performance over the course of 2020
Similarly, many other BNPL providers are also seeking to expand, capitalising on their success within the past few years. On a local scale, BizPay, a BNPL platform aimed at solving liquidity issues for businesses, is in talks of a float after a successful pre-IPO round which generated $24 million for the business. On a more global scale, UK-based BNPL provider Zilch, known for their partnership with MasterCard has raised $80 million from their latest funding round, which they plan on using to cement their UK growth even further as well as dive into the US markets.
Simultaneously, such services have instigated debates regarding BNPL firms should be considered credit providers. BNPL companies typically provide what is essentially an interest-free loan used to purchase, allowing them off the loan in 4 or more installments over a set period. Under the National Consumer Credit Protection Act, BNPL is not considered credit because interest is never charged nor does it function as a credit card, as the funds borrowed are for a specific product only. The lack of interest fees that need to be paid in addition to the lack of credit assessments that allows BNPL services to be approved immediately makes BNPL providers an alternative to using credit, which connotes long-term consequences for users, especially young men and women.
However, because of this, overcommitment arising from the inability to meet installment payments is a common pattern of behaviour that has caused harmful effects on consumers. As such, countries around the world have focused on creating regulations for the BNPL sector. While a consensus regarding whether BNPL is credit has currently not been reached, Australia stands as the country with the most regulatory demands relative to its peers. ASIC’s product intervention power in 2019 has helped address concerns regarding consumer overcommitment that the BNPL sector does not address. This will be supplemented with a new code of practice developed by AFIA and design and distribution obligations applicable to the BNPL sector, which is set to be fully implemented in Australia this year.
Despite current and upcoming regulations, BNPL will still differentiate from the use of credit, ultimately due to BNPL not being subjected to responsible lending obligations that help prevent consumer insolvency and overcommitment issues. The discussion regarding how controlled BNPL sector activity should remain ongoing, as the sector itself is on track to develop and expand even further thanks to an ever-growing global market catalysed by pandemic fuelled spending.
Aussie Rivals the Big Four with Digital Mortgage Venture
Australian financial group Aussie will take on the big 4 with its upcoming fully digital home loan service Aussie Online.
Following rising costs of traditional mortgages, tightening of surrounding regulation, and an overwhelming increase in the technical ability of existing and potential clients, digital mortgages aim to remove human interaction and drive efficiency in the mortgage process. This is achieved through standardization, automation, and simplification of the entire loan process. For example, digital mortgage services will drive down labour costs, reduce unnecessary paper, and cut credit assessor’s time, which in turn will greatly reduce the amount of time that customers will wait on their approval. It is reported that Aussie Online can complete a home loan approval online in under 30 minutes using automation for property valuation, credit checks, ID checks, and so on - all with only around 10 minutes of human intervention by a credit assessor.
A survey cited by Aussie reports that mortgage customers who research and complete their transactions online account for only 6 percent of the $350 billion annual mortgage market. However, as the market shifts towards customer self-service, this $21 billion a year is growing at around 33 percent annually, says Equifax. Further, Aussie is circling in on the other 16 percent, or $57 billion worth of customers who research online but complete their transaction in a traditional bank like CommBank or NAB.
There is much room for growth as around 60 percent of loan customers complete transactions using a broker, and as technology improves, so too will the digital process which currently tackles a complicated process. Further expressing signs of growth, Japanese conglomerate SoftBank invested $500 million in digital mortgage lender Better.com a few weeks ago.
“You are either part of change, or you are a victim of it,” said Aussie CEO James Symond
Aussie Online will use technology developed by mortgage fintech Tic:Toc to facilitate their service and will be supported by Lendi who will merge with the company, reducing current full owner Commonwealth Bank to a minority stake of 45 percent.
This is not the first time that Aussie has challenged the big four banks. 30 years ago, Aussie facilitated mortgage broker home services, something the big banks did not offer. Mr. Symond declared “Aussie Online is something really important to the future of the business. There are lots of people watching here to see if we get this right.”
The views expressed within this article are those of the authors and do not represent the views of the Finance Student's Association. All images and references in this article are for fair and educational purposes only. The content in this article is not intended as legal, financial or investment advice and should not be construed or relied on as such.