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Why so many retailers are buying into digital lay-by options

Fashion retailer Forever New now supports zipPay at all 92 of its bricks-and-mortar stores in Australia, expanding on an earlier move to make the alternative payment method available online in December 2016.

“Forever New continuously looks at ways to innovate and serve our customers better. By now offering the simple zipPay payment process in-store we hope to replicate the success we have had online,” Forever New’s brand director Carolyn MacKenzie said.

The fashion brand is just the latest retailer to buy into the rapidly growing buy now, pay later trend. Department store chain Myer recently launched Afterpay, a zipPay competitor and the leading buy now, pay later provider, throughout its store network.

Broadly speaking, these services provide a form of lay-by by letting customers split the total cost of their purchase into several installments. The difference is customers can take their items home immediately.

Retailers receive the full payment upfront minus a fee of anywhere between two to six per cent, which the payment provider collects in return for taking on the risk of default.

This method of payment is frequently described as empowering for customers, since they are not charged interest on their spending, and a no-brainer for retailers, as they benefit from increased basket size and conversions.

“Overall, the average transaction value is higher [for people who pay with Afterpay], but in terms of what they’re buying, there’s no pattern” Tim Halaska, head of e-commerce and customer service at Toys ‘R’ us said.

“We assumed it would be the large, bulky stuff, but we’ve seen people getting the everyday things they would buy anyway – just more of it,” he said.

One drawback for the toy retailer is the inability to handle returns seamlessly. “There’s no ability for stores to process refunds,” Halaska said.

Instead, customers must contact Toys ‘R’ Us customer service to request a refund, which the company then submits to Afterpay, which then settles the bill with customers within 48 hours.

Some others are concerned that the buy now, pay later mentality ultimately encourages some people to spend more than they can afford.

While it may not be the retailer’s responsibility to monitor their customers’ finances, neither is it in their best interest to burden customers with debt.

“From a purely business perspective, I don’t have a problem with it,” said Dean Salakas, co-owner of party supplies company, The Party People, which added zipPay as a payment option at the end of last year.

“The customer should know what they’re getting themselves into. It’s not me to try to decide that. But the thing with products like these is that the people who use them are the ones who should not use them.

“If you don’t have enough money in your account to buy something, you shouldn’t be buying it [through installments]. That is a concern,” he said.

Salakas is considering adding language about late fees to his website’s buy now, pay later messaging to help customers make more informed decisions.

Research manager at financial services rating agency Canstar Mitchell Watson believes education has an important role to play in any new payment method.

“Looking back, there was a large portion of misuse of credit cards about a decade ago. We have seen that shift change, and I think that’s come with a lot of education.

“Any product line that comes along isn’t dissimilar to that in that education is key to understanding what the product is and how it functions ans what the downsides are,” he said.

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March 24, 2017 at 10:02 am

No interest – umm yes there is….for Afterpay, you fund it from credit card, they charge interest. Afterpay doesn’t but the funding source does. Also look into the late fees, around 50% of revenue comes from these. Devil is in the detail. If things go wrong they blame the brand and AfterPay, thus damaging the customer experience.


March 25, 2017 at 9:22 am

It’s an example of the paradigm called “instant gratification”. As a consumer I can hardly understand the need of getting few hundred dollars financing for few weeks, but as success of Buy Now Pay Later services shows there is a demand for that.
And probably this demand is driven by people who can’t use more traditional forms of financing like credit cards.