AfterYAY? Try Debt Loaded Scam
Ok retail industry, I’m just about to give up on you.
Which is a shame, because I’ve been a major contributor to you for a very long time.
But after yesterday, I just can’t do it anymore.
You see, reader, as I was putting your Daily Reckoning Australia edition together — about the very serious topic of the government ditching recommendations from the Royal Banking Commission report — my personal email kept getting constant notifications.
Get 25% off now…
Take ANOTHER 20% off…
You know you want this…half price today only.
For nearly half an hour, every single damn email ding and flash was an advert to buy something.
It’s not Christmas. Or Australia’s spin on Black Friday.
Or that stupid online ‘Click Frenzy’.
Turns out, yesterday was ‘AfterYAY’.
A credit provider has worked out how to turn debt into a reason for a sale.
After pay the AfterPay
I’ve never used a ‘buy now, pay later’ service, and I have no intention to.
I do remember when I first heard of the idea, thinking ‘that’s genuis’.
Less than three years ago, no one had heard of AfterPay.
Now there’s several pay later companies in Australia, like ZipPay, RightPay and OpenPay, just to name a few.
You can see why retailers were keen to jump on board with the idea too.
What began as a way to increase online sales for retail stores has morphed into the new way to spend money.
The ‘buy now, pay later’ service would take on the credit risk of the customer…while encouraging the customer to spend more because the total cost of the purchase is broken into smaller payments.
There’s even a joke among people who use pay later services frequently, ‘there is a way to after pay the AfterPay?’.
This service doesn’t cost retailers too much either.
For example, AfterPay charge an upfront fee of 30 cents per transaction, then 4–6% of the total sales transaction. ZipPay — a similar services — charges about half that.
That means every $40 t-shirt you buy would cost a store a minimum of $1.90 per sale if using AfterPay.
The low cost means around 20,000 retailers in Australia now offer some sort of pay later service.
Plus, the number of Aussies using it has soared from 50,000 people in 2016 to 2 million customers this year.
Not only that, but sales driven events like AfterYAY have proven to directly increase the amount of transaction for retailers.
Last year for example, the AfterYAY sale processed $15 million worth of transactions over 48 hours. During the first hour of the sale, there were 1.5 orders processed per second.
Aside from special sale days, AfterPay alone is now processing 20% of all online retail fashion sales in Australia. And AfterPay — just them I might add — accounts for 5% of ALL online sales in Australia.
This is incredible market penetration.
Especially at a time when consumers are spending less…
Bigger than Harvey Norman
Consider this for a second.
In less than three years, AfterPay has a become $4.7 billion business. Meaning the ‘buy now, pay later’ company is worth more than $4.4 billion furniture giant Harvey Norman…who has been around for almost six decades.
More to the point, the rise of pay later services comes at a time when an entire generation is scared of debt.
There are less people taking out new credit cards.
The majority of pay later service users are under 33, earn less than $40,000 per year, and apparently eight out of ten are women. This entire demographic is reluctant to take on credit to fund frivolous purchase.
Which sounds positive.
However, AfterPay and their kind have rapidly evolved into the modern wonder of the Australian retail sector…propping up our spending with debt.
The future looks…broke
My actual concern with the rise of pay later services though, isn’t so much individual spending habits. That’s already well documented.
I have a much bigger problem with AfterPay.
And that’s the coordinated sales approach…from essentially a credit provider.
My issue with the pay later service actually has more to do with the AfterYAY sales I was bombarded with yesterday.
They created a national day of shopping through credit.
No debt provider in Australia would be allowed to offer a synchronised incentive to shop.
Or encourage a ‘day of debt’ to buy things you don’t need.
There’s no way Mastercard would be allowed to offer a 10% discount on shoes if you use it in store.
And I’ll add in that the ASIC would throw a hissy fit at Visa if they created an Australia-wide ‘shopping’ day.
Yet the pay later company essentially set up a targeted campaign through discounts to encourage more people to buy things…with debt.
Worse still, if the AfterYAY sale was as successful as the previous one, there will be more targeted ‘day of debt’ sales to come.
All of which is going to be great news for pay later share holders.
That is until AISC comes knocking on their door.
Until next time,