The buy-now-pay-later space is starting to heat up even further, with financial services giant Visa entering the fray.
The company announced on Friday it would be trialling new ‘instalment payment capabilities’ with selected merchants across the world. Businesses will be able to offer customers a buy-now-pay-later service via the Visa cards they already have, without using a third-party app.
“Visa’s instalment capabilities are changing the game by allowing issuers to leverage an existing payment account consumers already have and are familiar with, instead of asking them to submit to a credit check, download an app or open another line of credit,” senior vice president, global head of issuer and consumer solutions at Visa Sam Shrauger said in a statement.
“We expect instalments to become a foundational method of payment at checkout for both domestic and cross-border commerce payment transactions.”
While the company has not announced any Australian partners for its trial, that didn’t stop the announcement from shaking Australia’s listed buy-now pay-later operators such as Afterpay and Zip.
Zip’s share price dropped 11% in Friday’s final hours, and Afterpay dropped nearly 10%, following a tumultuous month for the fintech company.
The sector has been under increased scrutiny from regulators of all shapes and sizes over the past 12 months, with both ASIC, AUSTRAC and the Senate inquiring into the stability and process of the companies pioneering the service Down Under.
But this increase in oversight has been equally matched with increases in demand from consumers, with businesses in the retail space telling SmartCompany shoppers can’t get enough of the deferred payment schemes.
“We still see strong consumer demand for the payment option and this actually drives high sales,” Nathan Huppatz, founder of costumes.com.au told SmartCompany in February.
The crackdown also hasn’t deterred new players entering the market, with local financial services company flexigroup taking the wraps off a new buy-now pay-later offering this week.
Called humm, the product is pushing a responsible, consumer-first approach, attempting to set itself apart from the slightly more ‘cowboy’ operators such as Afterpay.
“humm is looking to disrupt current lending behaviour with an offering that is safe, responsible, puts consumers’ needs first, and can be trusted – in fact we have been trusted by Australians for decades,” Rebecca James, chief executive of flexigroup said in a statement.
Humm also offers buy-now pay-later offerings up to $30,000, allowing customers to repay the charge over a whopping 60 months if needed.
Is it here to stay?
Speaking to SmartCompany, founder of accounting firm SBO Financial Jason Andrew says Visa’s entry to the market will be one to watch, believing the payment giant’s choice to integrate it through existing channels will set it aside from existing players.
“Merchants are signing up to things like Afterpay because they’re driving a new channel of sales for them, Afterpay’s in-store sales are up 20% because of partnerships with retailers like Myer,” he says.
“People are actually spending more in addition to what they usually spend, it’s not cannibalizing existing sales channels.”
Visa’s new offering could cannibalize those channels, Andrew warns, but says without more information on how the company will roll out the service it’s hard to know what could happen.
However new entrants, such as humm, could find themselves facing an uphill battle against Visa, Andrew says.
“It will likely impact new entrants into the space, but I’m not sure if it will cannibalize existing ones. Consumers might just buy more stuff regardless,” he says.
Andrew still recommends retailers and service providers jump on board with the buy-now-pay-later trend if they can, providing SMEs are mindful of the associated costs.
Broadly, he also believes the service is here to stay, saying it’s revolutionised how millennials spend money, much like how UberEats revolutionised how we order food.
“These fintech platforms are fundamentally changing how consumers behave and how we financially run our lives,” he says.
“They’ve trained consumers to have a certain level of luxury and economy — you can’t just take that all away.”