- Online shoppers have a new option when it comes to checking out: buy now; pay later.
- Affirm, Afterpay, Klarna and QuadPay offer inexpensive alternatives to credit cards for buyers who don't want to pay all at once.
- While Affirm charges between 0 and 30% interest, startups like Afterpay, Klarna and QuadPay offer interest-free installment plans. So if customers pay installments in full and on time, there are no costs.
- Instead of customers paying the financing costs, retailers pay startups a percentage of the transaction.
- Click here for more BI Prime stories.
A lively group of startups is trying to redefine how customers withdraw cash at checkout.
Retailers traditionally offer discounts and special offers in-store and online for buyers who sign up for a store's credit card. Credit cards from retail brands, such as those from Amazon and Gap Inc., are offered at rates of up to 30%, according to Creditcards.com Retail card survey 2019,
However, the number of these cards in circulation has decreased steadily since 2009, especially among millennial buyers. According to the survey, only 19% of those who subscribed to a customer card were millennials aged 18 to 34.
Now, a number of well-funded startups are offering subscription-like installment plans to target millennial buyers who may not want to apply for credit cards in their favorite stores.
For example, Afterpay and Klarna offer interest-free installment plans to retailers such as Casper, Delta Air Lines and H & M. Some, such as B. Affirm, calculate interest based on a user's creditworthiness.
And their ads are everywhere. Like many startups, these buy-now-pay-later players have made plans New York subways to reach the crowds,
Klarna started a campaign last year with one of its investors, Snoop Dogg, who renamed it "Smoooth Dogg" and promoted "Smoooth Payments".
These installment payment options have proven attractive to buyers, especially online.
Affirm reported loans of over $ 2 billion in 2018. Afterpay granted over $ 5 billion in loans in one year and, according to the 2019 financial year, has 4.6 million users worldwide. The Swedish company Klarna, which was launched in the USA in 2015, saw annual growth of 6 million US customers.
Retail cards may become less popular, but general credit and debit cards are still in the foreground. Debit and credit card payments increased 9% annually between 2015 and 2018. according to the Federal Reserve,
Here's a look at some startups that are venturing capital and trying to change the way consumers spend online.
Affirm offers short and long-term loans based on the creditworthiness of the user at the point of sale
Affirm, founded by PayPal co-founder Max Levchin, offers retailers such as Casper, Delta Air Lines, Warby Parker and Walmart a free POS financing option.
Confirm that partners with e-commerce retailers offer POS loans during online checkout. And if Affirm has not been set up with a retailer, users can use Affirm credit or its app. Affirm is similar to a credit card in that it charges interest at an annual percentage between 0 and 30%, depending on a user's balance.
And since Affirm charges interest, the company is subject to U.S. regulations such as the Truth in Lending Act, which requires lenders to be transparent about loan terms and costs.
Affirm does not charge late fees and there is no deferred interest, but reports are made to credit bureaus, so late payments can affect users' credit scores. Depending on the size of the purchase and the user's credit profile, Affirm's loans are usually offered with terms of 3, 6 or 12 months. However, longer-term loans are available from selected retailers.
To date, Affirm has raised $ 800 million from investors such as Andreessen Horowitz, Lightspeed Venture Partners and Spark Capital, and is worth $ 2.9 billion, according to a spokesman for Affirm. TechCrunch Last year, Affirm reported that it raised $ 1.5 billion,
No interest rate options
Afterpay, Klarna and QuadPay offer customers the option of dividing online purchases into interest-free installments.
In a crowded market, everyone is competing for retail partnerships. These startups offer installment plans that help them increase sales and minimize shopping cart deliveries. None of these startups charge interest, which means that financing costs are shifted to dealers who pay the rate provider a percentage of every transaction.
And they seem to be everywhere in online retail, giving customers the ability to fund things like art, clothing, and makeup.
For retailers who have not integrated any of these startups into their checkout, buyers can still access installment funding through the startups' apps.
Australia's afterpay is growing rapidly in the USA
The Australian startup Afterpay is growing rapidly and partnering with retailers such as Adidas, J.Crew and the Urban Outfitters group, which includes anthropology and free people.
Afterpay does not conduct a credit check to determine a user's eligibility, and it is not known exactly how it makes its decisions. However, according to its websiteWith Afterpay, a user's payment behavior can affect whether a transaction is approved.
If a user misses a payment with Afterpay, he can only make further purchases with Afterpay after receipt of payment. Afterpay offers a grace period, which is usually around 10 days, according to its websiteand it charges users a late fee if payments are not made within the grace period.
A fee of $ 8 is charged for each late payment, but does not exceed 25% of the total purchase price.
Afterpay grew quickly. It was launched in Australia in 2015 and listed on the stock exchange in 2017. In 2018 it was launched in the USA, where it now has over 2 million customers. After his Results at the end of the 2019 financial yearAround 5% of transactions incur late payment fees, which account for 19% of Afterpay's earnings, after 25% in 2018.
Klarna, the unicorn supported by Snoop Dogg, has raised over $ 1 billion
Klarna was founded in Sweden in 2005 and launched in the United States in 2015. Together with Asos, Bose and H & M, the company offers its customers the option, among other things, of making interest payments within 30 days. Klarna also offers an app that allows users to secure credits with non-partner retailers.
If you are in arrears with a payment, Klarna offers a two-day payment period. If you still cannot pay, you are in default and cannot use the service again. according to its website,
Klarna raised over $ 1 billion with its latest fundraiser $ 460 million in August The valuation thus amounts to USD 5.5 billion. Investors include Dragoneer Investment Group (Chime and Compass), Snoop Dogg, and Visa,
QuadPay is one of the newer players in the scene
QuadPay, like Afterpay, offers four-part installment plans for online purchases. There is no interest, but a late fee of $ 7 will be charged for an overdue installment.
QuadPay is offered at retailers such as Fashion Nova, Ugg and S & # 39; well.
QuadPay does not check a user's credit report, so the application does not affect the credit scores. However, the company does not disclose information about how it assesses a user's entitlement. according to its website,
Late payments can be reported to credit bureaus, so a late payment can affect users' creditworthiness.
QuadPay was founded in 2017 and rose to Global Founders Capital in 2018.