Beyond fashion and millennials: The new way to “after pay”?
The new customers and markets entering the era of interest-free.
Two years ago, the promise of "interest-free payments" tended to be met with scepticism. Most interest-free deals were for a limited time and then reverted to a high interest rate. They were also largely reserved for big-ticket items such as furniture, cars or electronics. Now, you'd be hard pressed to shop for shoes or clothes online without seeing an interest-free payments provider as one of the payment options.
Described as the "new lay-by", interest-free payment platforms such as Afterpay and zipMoney have been making waves particularly in the retail scene. Openpay, established not long after Afterpay in 2016, has set itself apart in the space by offering longer payment terms, higher credit limits and focusing on different customer and market segments. It may signal the next stage of interest-free.
Different products, different people
Openpay's chief revenue officer Dion Appel, says the verticals it operates in are driven by customer demand. Its customers are aged anywhere between 25 and 60, but Appel says the "sweet spot" is customers in their late 30s to early 40s.
"They tend to be homeowners, young families, and really they needed a great way to manage cash flow," he said. Customer demand has seen Openpay partnering with retailers in the automotive, home improvement, health and retail space.
"We are looking at the profile of a customer that tends to be less of the millennial and more of the responsible adult. That becomes less of a risk for us because we don't want people to be hit out with late payments. We really want them to use us to better manage their cash flow."
When it came to choosing merchants to partner with, Appel says Openpay has a role to play in all transactions that help improve the life of the customer.
"So if you look at customers and you look at what they do, obviously, they're in homes, they're in cars, they're in clothes, they want to keep healthy from a lifestyle perspective, they want to travel," he said.
"You know, for us, it's very much about enabling people to do what they want to do and manage their cash flow in a way that works for that individual."
Focus on automotive
An interesting market segment that Openpay has entered is the automotive space, one which Appel says is "very exciting".
"So you're taking your car in for a service. And then you find out you need tyres, you need brakes, you need wiper blades. The average person doesn't really keep stock of when things are going to need to happen to their cars," he said.
As a result, people opt to not have everything that is required done to their car and service centres tend to "scope rather than upsell". Appel says this was a huge opportunity for Openpay to give people a way to spread these payments out and get the required maintenance done to their vehicle.
"Because rather than paying for that extra thousand dollars on top of the service, you can actually pay that over a 12-month period," he said.
"It smooths out the payment and keeps you on the road with the car that's operating much better, that'll last longer and that will hold the value more."
Making sure they can pay
While the interest-free finance market has exploded, so has interest in the sector. And not all of it has been positive. Afterpay particularly has come under fire for restrictive repayment terms and non-existent credit checks.
Appel says they are always going to be aware of competitor platforms such as Afterpay, but they focus more on merchants and customers.
"That's why we take a very responsible approach to lending. We do ID checks on every single person that we lend money to, which, you know, hasn't necessarily been the case with some of the competitive set. We have a very flexible option – $50 to $20,000 and 2 months to 40 months."
Appel says they are focused on customising and developing a very flexible offer for the merchant that has the end customer in mind.
"We actually do create bespoke products for each of our merchant partners that ensure customers don't get themselves into a point of default."
In terms of the criticism that is being levelled at Afterpay, Appel believes any emerging industry that's in a high growth phase is bound to get criticised.
"I think any criticism in the industry has an impact on the industry per se," he said.
"We're very open in brand line and approach to ensure that this industry does have a future because it is very much helping Australians afford more and stay out of credits and debt."