COVID-19 has led to a boom in the buy-now-pay-later and alternative credit space, with the big players going gangbusters and smaller players emerging from the sidelines.
But, according to one Aussie fintech founder, we haven’t seen anything yet.
Beforepay is one startup riding this wave, with its tech allowing users to gain early access to their paychecks, thereby effectively allowing them to use buy-now-pay-later-style financing for those products the likes of Afterpay and Zip miss.
Just this week, the business announced it has raised $4 million in funding, just 10 months after it was founded. It also has more than 100,000 customers on board, and is growing at a rate of 20% week-on-week.
But, speaking to SmartCompany, co-founder and chief Tarek Ayoub says this wave of innovation is in its earliest days yet.
The COVID-19 pandemic served to accelerate the growth of all kinds of digital products, he explains.
It did the same in financial services, but the trend was already picking up steam long before — because there were problems that needed to be fixed.
“I believe that the fundamental way credit is being distributed to consumers — especially at a micro level — is broken,” Ayoub says.
“That’s where Afterpay and the BNPL [businesses] have been able to gain such great traction.”
In the next 10 to 50 years, Ayoub predicts we will see an influx of new, alternative credit solutions, “that are even more innovative than us”.
It’s about catering to what users actually want, rather than simply the demand for cash, he says.
It’s time for this sector to focus on the customer. And that’s what the consumers of the future will demand.
Numbers speak louder than words
The recent success of the big Aussie BNPL players has been well documented. But there are other players, such as Beforepay, emerging too.
In July, for example, Payright raised $12 million for its BNPL solution for big-ticket items.
Limepay also recently raised $6 million, providing a white-label online payments platform for businesses, and allowing them to take control of their own BNPL offering.
Ultimately, the pool of consumers in the market for these alternative short-term financing products is growing, Ayoub explains.
These consumers are ethically aware and principled. They’ve lived through the global financial crisis and the banking royal commission, and they’re more aware of the way financial services do business than ever before.
So, what they crave is simplicity, transparency and control.
Ayoub points to traditional credit cards as an example.
Typically, the documents that come with them are confusing and convoluted, with multiple different fee structures buried in the terms and conditions, he says.
For traditional finance providers, “that does not help their cause”, he says.
“It really just digs them a greater hole.”
For the most part, Beforepay’s customers are millennials and members of gen Z. While 60% of those customers say they use BNPL, fewer than 3% use a credit card, Ayoub says.
That alone shows there’s change ahead, he adds.
“Numbers speak louder than words … this is only the beginning.”