What Are ‘Buy Now, Pay Later’ Sites?

Buy now, pay later sites are websites or apps that allow consumers to purchase products now, but pay the full amount over time with a number of smaller instalments. If the consumer can’t afford the full cost of a purchase right now, they can use a buy now, pay later service (like Afterpay) to make the payment for them. The merchant still gets paid (usually within two business days) while the consumer receives their desired products and services, and then pays the rest to the service provider in instalments. A $100 purchase for example, becomes four $25 payments over four weeks with Afterpay. The difference between this and a credit card, is that you don’t pay any interest.

Why is buy now, pay later becoming popular?

Buy now, pay later creates more flexibility for consumers as they don’t need the full amount in cash to buy an item. This allows them to take advantage of limited time sale periods for example. It’s a great way to attract consumers who are willing to spend but don’t want to save the money up beforehand. Buy now, pay later options can be used both online and instore and have already been widely adopted in retail, fashion, homeware, and hardware stores. They appear alongside your other payment options at checkout and can be included in your online store through an API or plugin. Keep in mind that you’re able to offer multiple buy now, pay later services. Your customers will always appreciate a variety of payment options.

What are the different buy now, pay later options and how do they work?

Payment schemes for the consumer differ between buy now, pay later providers. The main buy now, pay later providers are: Afterpay, Laybuy, PartPay, OxiPay, ZipPay, and OpenPay. Each provider has different time periods in which consumers need to pay back the cost of the items. Any additional fees also depend on the provider. In most cases if the payment deadlines are met then there is no additional fee (for example, a late payment fee).

Some providers may also run a credit check to make sure customers are able to pay off their purchases. In New Zealand the buy now, pay later option is available to customers over the age of 18 with credit or debit card details and a valid New Zealand ID. Popular stores such as Glassons, Cotton On, and Farmers all offer buy now pay later options to their customers. The benefit for retailers is that it captures customers who would have normally abandoned purchasing due to their financial situation at the time. Instead, it creates sales out of customers who may not have been able to follow through with purchases in the past and opens the market for new customers. Put simply, buy now, pay later services are an interest-free alternative to credit cards where consumers can see their individual purchases being paid off.

How does Afterpay work?

Afterpay has over 200,000 users in New Zealand. To use this service, customers need to create an account and provide details such as their name and credit/debit card details. Merchants can adopt it in their online store through the API or their integration with popular e-commerce platforms such as Shopify, Magento and WooCommerce. Once set up, Afterpay appears as a payment option at checkout. Retail sales through Afterpay totalled NZ$2.4 billion as of March 2019. More than 10% of online sales in Australia are now made using Afterpay and it claims to have attracted one in every four millennials to its platform.

Afterpay states that the benefits of their service are that customers end up spending more per transaction, and then continue to come back. According to a consumer survey by independent finance product website, Mozo, 50% of Afterpay users said they spent more using Afterpay than when using a debit or credit card. Furthermore, 64% of respondents said that being able to make smaller, spaced out payments was influencing them to make purchases they wouldn’t have normally made if it was an upfront transaction. Katherine Mamontoff from MAC is quoted on the Afterpay website that close to half of MAC customers are using Afterpay and spending 14% more on their purchases as well.

Afterpay details

• Afterpay payments are charged automatically in four equal parts, each two weeks apart.
• Customers need to pay the first 25% of the payment upfront.
• There’s no interest and fees are only charged if a payment is missed.
• If the customer account is linked to a credit card, the limit is $1000 to $1200 depending on the customer. If their account is linked to a debit card the limit is $500.
• For customers in Australia and New Zealand there is a $10 late payment fee, and a further $7 charge if payment isn’t made within 7 days.
• In the United States, the late payment fee is $8 and a further $8 if unable to pay within 7 days.
• Late fees are capped at 25% of total value per order.
• Merchants are charged a percentage fee per transaction. This comes to around 30 cents per transaction plus commission of 4% to 6%.
• Settlement payments to the merchant are usually made within 2 business days.
• App available for iOS & Android.

How does Laybuy work?

Laybuy is a New Zealand buy now, pay later provider with over 180,000 users in New Zealand. It’s also available in approximately 200 physical stores such as Glassons, Hallensteins, Stirling Sports, and North Beach. To use this service, customers need to create an account with their name and credit/debit card details.

Laybuy performs a credit check of all new users upon registration to obtain a credit score. Once the credit score has been approved and the account has been verified, Laybuy assigns the purchase limit and shopping can begin immediately. Laybuy is available as a payment option in multiple online stores, and customers can select the option at checkout. Merchants can add Laybuy to their website using the API.

Laybuy details

• Using Laybuy, consumers can receive their products or services immediately while their credit/debit card is charged automatically in six weekly instalments.
• The first instalment needs to be paid upfront.
• Limits can go up to $1200 but customers can go above the limit if the excess is paid on the first day. For example, if a customer has a limit of $120 and wants to purchase an item for $200, they will be charged $80 on the date of purchase. The payments for the following 5 weeks will then be $24 per week.
• A late payment fee of $10 will be charged for each payment that is not made on time.
• Payment to the merchant is settled into the nominated account up front (usually within 48 hours of a purchase being made) and Laybuy assumes all credit and fraud risk for every transaction.
• Laybuy takes commission of the total purchase price. Exact percentage not advertised, but likely to be negotiable.
• By becoming a merchant with Laybuy you also have access to shopper data which you can use to help grow your business.
• Traffic to your website can also increase when you are added to Laybuy’s online shopping directory.

How does PartPay work?

PartPay is another New Zealand owned provider of the buy now, pay later service. Like the others, it can be used in-store or online and has plug and play integration with popular e-commerce platforms such as Shopify, Magento, and WooCommerce. Laybuy also provides free installation for merchants using Magento. PartPay CEO John O’Sullivan says PartPay, which was launched in June 2017, has seen rapid growth in the number of retailers and consumers it has on its books. He says it has undertaken more than 250,000 transactions since launching.

PartPay details

• PartPay pays merchants the full amount they are owed minus merchant fees agreed on at the time of registration. Payment is allocated to the nominated bank account the next business day after a purchase is made even if a customer does not meet their instalments.
• Customers need to pay 25% of the total purchase up front.
• No interest is charged as long as payments are made on time, however, there is an $8 late payment fee if the payment is missed and an additional $8 per week if payment is outstanding.
• Merchants are not held to an exclusive fixed term contract, this means if PartPay is not beneficial for your business, you can turn it off.

How does OxiPay work?

OxiPay is an established service owned by the same New Zealand company offering finance through the popular Q Card. For retailers already accepting Q Card, this is an easy add-on that can be incorporated in the online checkout process like the other buy now, pay later services. Once again, customers need to create an account to use the service. Retailers such as Rebel Sport, Briscoes, Farmers, and Whitcoulls all offer OxiPay. FlexiGroup NZ CEO Chris Lamers says it launched Oxipay in New Zealand in August 2017. He says the buy now, pay later market is thriving and the company’s customer base is growing by almost 15% a month.

Oxipay details

• The total payment with Oxipay is divided into four fortnightly payments.
• First payment is due at the time of purchase.
• Late payment fees are $10 and a $30 collection fee may apply if payment is still outstanding more than 7 days after the due date.
• Oxipay purchases can go up to $1500 however the total of all your Oxipay arrangements cannot exceed $1000 and customers cannot have more than 5 active purchases.
• Oxipay also has a merchant fee but don’t advertise the exact percentage they take from the transaction. It’s likely to be between around 4%, similar to other providers.

How does Zip Pay work?

Zip Pay has over 800,000 users in Australia. Zip Pay differs from the majority of the other buy now, pay later services as it allows the customer to tailor their payments to suit their lifestyle (weekly, fortnightly or monthly). At the beginning of the month, the buyer gets a statement of what they have spent and paid in the previous month. It is up to the customer to then pay the balance back in full at the end of the month, or pay over time from $40 a month, interest-free. Zip Pay also separates their services into two categories: Zip Pay, and Zip Money. Zip Pay is for purchases under $1000, and Zip Money is for anything over that amount.

Zip Pay states that by having their buy now, pay later option customers are more likely to checkout, resulting in up to 30% increase in conversions. Additionally, customers checkout with an above average basket size, up to 70% increase in order value. Furthermore, customers are more likely to come back, up to 80% increase in repeat purchases.

Zip Pay details

• Customers can choose their own payment schedule of weekly, fortnightly, or monthly.
• Choose to pay the full balance of purchases from the previous month, or start paying it off in instalments of at least $40/month.
• There is an account fee of $6 a month which is waived if there is no balance due.
• The account limit on Zip Pay is $1000 but for larger purchases there is Zip Money where the limit goes above $1000.
• Zip Money offers 0% interest for 3 months and has establishment fee up to $99.
• There is one fee per transaction for the merchant starting at 5%, but can drop lower the more transactions you make through Zip Pay.
• App available for iOS & Android.

How does Openpay work?

To use Openpay, customers need to download the app for Android or iOS, sign up and gain approval. Openpay can then be selected as a payment option at the online checkout or in-store. The biggest difference between Openpay and other buy now, pay later services is that it’s designed for bigger purchases, with a maximum limit of $10,000. In turn, it gives the buyer more time to pay.

Having more time to pay means customers are more comfortable spending and using the service. It creates a loyal repeat customer base who shop more frequently and spend higher amounts. In women’s fashion, Openpay found a 77% increase in repeated customers with a 116% increase in the average transaction value. Openpay service is popular in home improvement, healthcare, retail, automotive sectors.

Openpay details

• Maximum purchase limit of $10,000, interest-free.
• Customers can choose a payment plan that works for them (6,12, 18 months).
• There is a merchant fee but the actual percentage depends on the size and type of business.
• Integration options for all major e-commerce platforms including Shopify, Magento, Opencart, and WooCommerce.
• App available for iOS & Android

Regulation of buy now, pay later services in Australia and New Zealand

Buy now, pay later services are currently unregulated in Australia and New Zealand. Recent Australian reports have recommended regulation of these services however, and it is speculated New Zealand will soon follow. Currently, since the providers do not charge interest or fees, they do not need to comply with requirements under the Credit Contracts and Consumer Finance Act 2003. Therefore, they do not need to check a customer’s financial records to see whether they are able to pay back the amount spent. Additionally, a consumer can easily use multiple buy now, pay later services and have multiple transactions across different providers.

Consumers also are not protected under the Fair Trading Act 1986 as buy now, pay later services do not fall under “layby sale agreements”. Nevertheless, they are still required to be registered on the Financial Service Providers Register and have restrictions around being involved in misleading or deceptive conduct.

In a report released by the Australian Senate Economics References Committee, a regulatory framework was recommended. This is so providers take into account the financial situations of their customers before letting them use the service. It also recommended that hardship provisions be offered, products listed are affordable, consumers are properly informed, and that dispute resolution is accessible.
In New Zealand, Minister of Commerce and Consumer Affairs, Hon Kris Faafoi, stated the buy now, pay later services do not need to be brought under the Credit Contracts and Consumer Finance Act 2003. This could change however if there was more evidence to reflect it caused harm to consumers. In turn, it is suspected that this may lead to a new regulatory framework focusing on requirements of who is able to use the buy now, pay later services, discussing whether fees are reasonable, and ways to handle disputes.

Why add buy now, pay later options?

Users rapidly on the rise

A report by the Australian Securities and Investments Commission (ASIC) found that buy now, pay later providers were influencing the spending habits of consumers. It found that the number of consumers who have used buy now, pay later services had increased from 400,000 customers (2015 to 2016) to 2 million (2017 to 2018). Additionally, the number of transactions increased from around 50,000 in April 2016 to 1.9 million in June 2018.

Increases average order value

Buy now, pay later services also help increase the average order value and revenue brought in from customers. It makes it easier for customers to purchase products and become comfortable with spending. If a customer only has $40 to spend on clothes, the maximum revenue a store they choose to shop at can receive is $40. This changes when buy now, pay later options are available as it gives consumers the ability to stretch their original budget.

Improves customer loyalty

The potential of customers to come back increases when they have a positive experience spending money with a buy now, pay later service. It sets the merchant apart from competitors who may not provide the same option.

What is the best way to pick a buy now, pay later provider?

When selecting a buy now, pay later provider take into consideration the type of plan that would suit your target audience. What spending limit would suit your customer if they wanted to buy something from your store? What time period would work best for them to make the payments? If they were behind on a payment, how much of a late fee would they be willing to pay?

Merchants can also look at each provider’s store directory to get an idea of the type of brands that are using a particular buy now, pay later provider and whether their business operates in a similar space. The store directory also reflects the audience that the provider is targeting.

When comparing the different providers, merchant fees can be a distinguishing factor. Merchant fees are charged as a percentage of the total sale amount. While these fees may not affect larger businesses so much, smaller businesses will have to consider whether the benefits are worth the cost.

Summary of merchant fees

AfterPay ‐ 30c per transaction plus commission of 4%-6%.

Laybuy ‐ Exact percentage of commission not advertised. Likely to be negotiable.

PartPay ‐ Exact percentage of commission not advertised. Likely to be negotiable.

OxiPay ‐ Exact percentage of commission not advertised. Likely to be negotiable.

Zip Pay ‐ Approximately 5% per transaction. Better rates available the more transactions processed through Zip Pay.

OpenPay ‐ Dependant on size and type of business.

There is no denying that the number of customers using or wanting to use buy now, pay later options is on the rise. Consumers are looking for flexibility and instant gratification. They want the product now and the ability to pay off smaller amounts over time. Businesses that haven’t incorporated a buy now, pay later option could be missing out on a large part of the market. The buy now, pay later trend seems to be on a constant rise and is even resulting in governments suggesting that the industry be regulated. For now though, it’s up to each business to decide whether the benefits outweigh the cost, both for themselves and their customers.