Buy now, pay whenever? Lockdown lift for online shopping loans | The Business Standard
Skip to main content
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
    • GOVT. Ad
  • More
    • Subscribe
    • Videos
    • TBS Graduates
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Long Read
    • Interviews
    • Offbeat
    • Tech
    • Magazine
  • বাংলা
The Business Standard

Monday
October 02, 2023

Sign In
Subscribe
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
    • GOVT. Ad
  • More
    • Subscribe
    • Videos
    • TBS Graduates
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Long Read
    • Interviews
    • Offbeat
    • Tech
    • Magazine
  • বাংলা
MONDAY, OCTOBER 02, 2023
Buy now, pay whenever? Lockdown lift for online shopping loans

Global Economy

Reuters
06 July, 2020, 10:35 am
Last modified: 06 July, 2020, 10:44 am

Related News

  • No more central bank loans to the govt: Will it be enough to curb inflation?
  • Cenbank co-finances $100m to Petrobangla's LNG import fund
  • Shipbuilders get till 30 Sept to appeal for loan rescheduling 
  • Nearly Tk20cr of Legacy Footwear's loan waived
  • DrutoLoan: A start-up providing finance to small businesses

Buy now, pay whenever? Lockdown lift for online shopping loans

While a move to online shopping was underway before the pandemic, the shift has accelerated under lockdown

Reuters
06 July, 2020, 10:35 am
Last modified: 06 July, 2020, 10:44 am
A smartphone displays a Klarna logo on top of banknotes is in this illustration taken January 6, 2020/ Reuters
A smartphone displays a Klarna logo on top of banknotes is in this illustration taken January 6, 2020/ Reuters

Browsing online during lockdown, Jessica Friend spotted a pair of Ray-Ban sunglasses she liked, but the price tag made the 30-year-old Ohio resident think twice.

What persuaded her to click 'buy', Friend said, was the short-term credit offered by Afterpay, which split the $260 payment into four interest-free instalments.

Afterpay is among a handful of alternative credit firms which offer small loans, mostly to online shoppers, and make their money by charging merchants a 4%-6% commission.

These buy-now-pay-later (BNPL) firms have benefited from a shift to online shopping during the coronavirus crisis in countries including the United States, where state aid has also boosted retail sales.

"I'm more inclined to use them because they make it easier to afford to get the things I want all at once ... and when I want to splurge on something," Friend said of the loans.

Some investors are now betting shoppers will stay away from stores as coronavirus cases rise again in several countries around the world, boosting business for BNPL firms.

But swelling subscriber numbers may also increase bad loans, mainly among first-time users who are more likely to default.

And as job losses rise and government aid ebbs, the business model will face its first real test in a recession.

"Much still hinges on any virus second waves and government wherewithal to keep boosting demand," said Andrew Mitchell of Ophir Asset Management which owns shares in Melbourne-based Afterpay, whose market value has risen to $12.55 billion from over $100 million four years ago.

While a move to online shopping was underway before the pandemic, the shift has accelerated under lockdown and Afterpay signed up more than a million new active US customers between March and early May, taking its overall base there to 9 million.

Meanwhile retailers desperate to move merchandise have also become more receptive to partnerships with BNPL firms, which unlike credit cards or mortgages, make loans instantly.

Klarna, Europe's biggest fintech start-up, said that since March enquiries from retailers who may want to partner with it jumped by 20% on average globally.

With 7.9 million US subscribers, Sweden's Klarna has since signed up outdoor gearmaker The North Face, Disney's streaming service and cosmetics retailer Sephora.

Most of the growth has been in higher-margin discretionary spend categories such as fashion and fitness gear, said Puneet Dikshit, a McKinsey partner in New York, who expects the sector to generate $7 billion to $8 billion in volumes this year in the United States, growing by more than 150% annually.

Although fears of credit losses sparked a sector-wide sell-off in March, the entry of big tech investors and rising subscriber numbers have since supported a sharp recovery, with stocks now at record highs.

'Turn Off The Taps'

The pandemic forced most companies to tighten their risk settings, which they say may push up loan rejection rates, although Afterpay, Klarna, Zip and Sezzle declined to provide specific numbers.

"BNPL operators can turn off the taps and quickly throttle down growth if repayment risks increase," Mitchell said.

While Afterpay, with bad loans totalling 1% of its loan book as of March, changed its requirements so that customers had to pay a quarter of their loan upfront, co-founder Nick Molnar said rejection rates were roughly in line with the start of the year.

Molnar said an overwhelming majority of Afterpay customers, whose average transaction value is A$150, pay back on time, while loans on new purchases are denied to those who do not.

Although some brokerages expect Afterpay to turn a profit by 2022, rising costs to finance expansion and credit losses that eat into receivables are likely to mean BNPLs, which operate on thin margins, remain unprofitable for some time.

Klarna saw credit losses more than double in the first three months of the year to about 0.7% of underlying sales as it expanded in Europe and the United States, where regulation of the sector is almost non-existent.

Only California has said BNPL firms need a license, and fined some for lending without one.

In Australia, where the industry first took off on the back of easy funding, the corporate regulator is set to release a follow-up report this year to one it issued in 2018 raising concerns about users becoming overextended and calling for BNPLs to be regulated in line with other credit services.

Companies, investors and analysts agree that young people with stimulus money in their wallets are driving sales and BNPL shoppers that Reuters spoke to were all under 35 and bought household items, as well as skin care products and clothes.

"The vast majority of our customers have income levels of under $75,000, so I would say the majority probably have a stimulus check," said Charlie Youakim, CEO of Sezzle, one of the smaller firms.

The younger demographic is harder to assess because they lack credit history, meaning most companies use algorithms to run real-time eligibility checks and assess risk of default.

"Our internal engine assesses risk taking various parameters into consideration which also will include consumer payment history, what is being purchased and is combined with varying third-party data sources and authentication solutions," Klarna spokeswoman Aoife Houlihan said.

Sydney-based Zip, with bad debts of just over 2% of receivables, said it assesses shoppers' public information and credit scores.

Around one in 100 customers is late with payments each month, spokesman Matthew Abbott said, adding that Zip recently tightened eligibility rules, leading to higher rejection rates.

Top News / World+Biz

online shopping / loan

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • Illustration: TBS
    Why do Bangladeshi universities fare so poorly in global rankings?
  • Big drops in remittance, exports make reserves struggle harsher
    Big drops in remittance, exports make reserves struggle harsher
  • Shahjahan Bhuiyan’s parents and two out of his three siblings passed away when he was behind bars. He missed all the funerals.  
Photo: Nayem Ali
    Hangman Shahjahan Bhuiyan: Life after 60 executions and 44 years in prison

MOST VIEWED

  • Paperfly aborts flight
    Paperfly aborts flight
  • Photo: TBS
    Habibur Rahman takes charge as 36th DMP commissioner
  • Some banks get more remittance. Is it for extra efforts, or higher dollar rates?
    Some banks get more remittance. Is it for extra efforts, or higher dollar rates?
  • How China's Belt and Road changing Bangladesh's  infrastructures
    How China's Belt and Road changing Bangladesh's infrastructures
  • Photo: TBS
    Dhaka traffic slowest in world: Study
  • US dollar banknotes are seen in this illustration taken on 10 March 2023. Photo: Reuters
    Remittance earnings in September lowest in 41 months

Related News

  • No more central bank loans to the govt: Will it be enough to curb inflation?
  • Cenbank co-finances $100m to Petrobangla's LNG import fund
  • Shipbuilders get till 30 Sept to appeal for loan rescheduling 
  • Nearly Tk20cr of Legacy Footwear's loan waived
  • DrutoLoan: A start-up providing finance to small businesses

Features

Shahjahan Bhuiyan’s parents and two out of his three siblings passed away when he was behind bars. He missed all the funerals.  
Photo: Nayem Ali

Hangman Shahjahan Bhuiyan: Life after 60 executions and 44 years in prison

1h | Panorama
Illustration: Collected

Apology to a life forgotten to live

15h | Features
Photo: Kazi Ashraf Uddin

Coffee: More than a beverage, something of a beloved

18h | Features
The price back to the normal range is possible if the corporations who control the feed market reduce the feed and chick prices. Photo: Noor-A-Alam

Will eggs ever return to their 'normal' price?

20h | Features

More Videos from TBS

Everything about the ICC Cricket World Cup 2023 stadiums: Part 1

Everything about the ICC Cricket World Cup 2023 stadiums: Part 1

12h | TBS SPORTS
Apple is bringing new software updates to prevent overheating

Apple is bringing new software updates to prevent overheating

14h | Tech Talk
A unique study cafe in the city

A unique study cafe in the city

13h | TBS Stories
Reserves are falling even as the dollar's share of global payments rises

Reserves are falling even as the dollar's share of global payments rises

17h | TBS Economy
EMAIL US
[email protected]
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Privacy Policy
  • Comment Policy
Copyright © 2023
The Business Standard All rights reserved
Technical Partner: RSI Lab

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - [email protected]

For advertisement- [email protected]