A host of ‘buy now, pay later’ services have sprung up in recent years, with fintech companies clamouring to cash in on customers’ desire for instant gratification.
Unlike credit cards, which have fallen out of favour with many consumers, pay later services generally offer interest free periods and more flexible terms. Once such service is Australian company ZipMoney, founded in 2013 by Larry Diamond and Peter Gray.
“We looked at the credit card market and we saw a market that was in a state of decline, offering credit products to consumers that were hard to sign up to, didn’t provide flexibility, and had a really strong focus on interest bearing,” Diamond told RetailBiz ahead of his appearance at the Mumbrella Retail Marketing Summit next week.
“We saw an opportunity to create a payment solution that delivered a best-in-class user experience.”
The product they created is a mix of credit and payments, which Diamond likens to the American Express model.
“We issue credit and we are a financial services provider—we give people this digital credit account and then we facilitate payments through a closed-loop-network.”
Creating new customers
For retailers, Zip doesn’t just process payments but can also deliver new customers to a store.
Diamond said customers like the simplicity of having an interest free digital wallet and are looking for places to use it. Around 600,000 users and 7,000 retailers are currently signed up to Zip’s digital wallet but the aim is to have Zip at every checkout.
“A lot of retailers are putting Zip at the checkout because they see us as the next generation of payments. Not just for processing payments but helping drive conversion, helping customers come back and transact, and we also introduce a lot of customers to our retailers…We’re seeing each month the rate of repeat transaction increasing.”
About 60 per cent of the company’s customers are below 35, but Diamond said older consumers are increasingly adopting the service as they become more comfortable shopping online.
“The arrival of Amazon is bringing more customers into the digital world, so people like my dad that might not have shopped online are becoming new customers and becoming digitally savvy… We see a pretty large addressable market.”
Influencing shopping behaviour
Pay later services are also influencing consumers’ shopping habits, encouraging people to buy now and buy more.
“The idea that you can enjoy an experience or a dress and pay for it as you use it or over time is probably influencing people’s shopping behaviour,” Diamond said.
“Historically if you paid for a trip to Fiji on a credit card, you would start paying interest after 25 days. But if you can pay for that over six months interest free, that may encourage you to access the deal sooner, and probably to be a bit more active in the market.
“It’s like Uber, by providing a great user experience where it’s seamless and effortless you tend to see heightened activity.”
As more customers gravitate towards alternative payments, whether it’s a pay later service or using a mobile to pay direct from your bank account in real time, it’s vital retailers offer customers choice at checkout so they don’t abandon their purchase or go elsewhere.
“If you’re a retailer thinking about maximising conversion and delivering a great experience, you have to have the right mix of payment options at the checkout,” Diamond said.
“The pay later solution helps drive incremental sales, it’s risk free as providers like us will actually hold all the charge back risk, and you’re providing a great user experience.”
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