quests we receive is to offer a lay-by service, and we feel that zipPay is certainly the modern, digital approach to lay-by,” said Sarah Lukins, Forever New’s general manager of digital and marketing. Broadly speaking, zipPay and its ilk provide a ‘buy now, pay later’ service that allows customers to take their items home immediately, but split the total cost of their purchase into several installments. Meanwhile, retailers receive the full payment upfront minus a fee of anywhere from two to six per cent, which the payment provider collects in return for taking on the risk of default. This method of payment is frequently described as ‘empowering’ for customers, since they are not charged interest on their spending, and a ‘no-brainer’ for merchants, since they reportedly benefit from increased conversions and basket size. But according to retailers who have integrated the payment options already, such promises rely heavily on back-of-the-envelope calculations which are often difficult to prove in advance, even though they may be borne out in practice. When in doubt, just make stuff up Tim Halaska, head of e-commerce and customer service at Toys ‘R’ Us, explained the process of crunching the numbers ahead of his company’s October launch of Afterpay. “We were thinking if everyone who uses Afterpay spends an extra $50, and out of that we get an extra $20 in profit, it would cover the [higher] percentage fees,” he told Inside Retail Weekly, though he admitted the figures were based more on guesses than empirical evidence. “We didn’t really forecast the volume because we didn’t know [what it would be]. There was much [that was] unknown. We made stuff up to be honest.” One reason for this may be that it is difficult to generalise outcomes across retailers in diverse categories. Still, for a payment method that advertises its ability to increase sales and basket size, and charges a higher merchant fee for the privilege, the lack of rigour is troubling. But Halaska says Toys ‘R’ Us was willing to just “see what happens” because the retailer never intended to simply boost its online sales, but rather always saw Afterpay as a much-needed alternative to its in-store lay-by offering. “Because we actually have to hire containers onsite to keep all the lay-bys, there’s a cost to our business and a strain on our stores, so that’s another plus [with Afterpay]. Although it is online only, it’s still going to help,” he said. He would not disclose any specifics, but said the uplift in the average transaction value has exceeded his expectations so far and more than covers the merchant fee. “Overall, the average transaction value is higher [for people who pay with Afterpay], but in terms of what they’re buying, there’s no pattern. We assumed it would be the large, bulky stuff, but we’ve seen people getting the everyday things they would buy anyway – just more quantities of it,” he said. When asked whether there were any drawbacks to the ‘buy now, pay later’ service, Halaska could not name one. His later description of the process of returning an item purchased through Afterpay, however, seemed somewhat less than smooth. “There’s no ability for stores to process refunds [without pre-arranging the return through customer service]. We would lose control over it if we let stores [do that],” he said, since the company’s in-store registers don’t support Afterpay. Instead, the customer must contact Toys ‘R’ Us customer service to request a refund, which the company then submits through a portal to Afterpay, which then settles the bill with the customer within 48 hours. According to Halaska, this process is not very different from the way Toys “R” Us processes non-Afterpay returns. But it will certainly seem clunky to many retailers and customers used to quicker turnarounds. Who’s left with the debt There are also concerns that the ‘buy now, pay later’ mentality ultimately encourages some people to spend more than they can afford. And while it may not be retailers’ responsibility to monitor customers’ finances, neither is it in their best interest to burden customers with debt. Dean Salakas, co-owner of party supplies company, The Party People, added zipPay as an online payment option three weeks ago, and he can see both sides. “From a purely business perspective, I don’t have a problem with it. The customer should know what they’re getting themselves into, it’s not for me to try to decide that,” he told IRW. “But the thing with products like these is that the people who use them are the ones who should not use them. If you don’t have enough money in your account to buy something, you probably shouldn’t be buying it [through installments]. That is a concern.” Salakas said he is considering adding language about late fees to his website’s ‘buy now, pay later’ messaging to help customers make more informed decisions. This is the right move based on Australian consumers’ history with credit, according to Mitchell Watson, research manager at financial services rating agency, Canstar. “Looking back, there was a large portion of misuse of credit cards about a decade ago. We have seen that shift change, and I think that’s come with a lot of education and the like,” said Watson. “Any product line that comes along isn’t dissimilar to that in that education is key to understanding what the product is and how it functions and what the downsides are.” Halaska sees things differently. “We’re allowing customers to spend $10 with us and break that into four payments, there’s no minimum spend of some crazy figure like $500. It’s more about the convenience,” he said. “It’s not about buying more because you can. It’s about making it easier.” You can’t argue with numbers To be sure, none of these concerns has slowed down the uptake of new payment options at the checkout. Forever New is just the latest retailer to support zipPay, whose public parent company, zipMoney, reported more than 63,300 active customers and over 1300 merchants as of 31 October this year. That’s less than ASX-listed Afterpay, which reportedly has more than 250,000 users and 1,500 merchants, including most recently Super Retail Group and Toys ‘R’ Us, as of 29 November. Openpay, the newest entrant in the ‘buy now, pay later’ space and the sole in-store-only payment option (both Afterpay and zipPay support online and instore transactions), claimed around 200 merchants and 40,000 customers at the time of its soft launch in October. Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.