Buy now, pay later (BNPL) has exploded in the wake of the pandemic as consumers embrace the freedom it gives them to make multiple interest-free installments.
In the U.K., where Swedish giant Klarna’s BNPL service is very popular among shoppers, other players like Laybuy are grabbing a piece of the pie.
In an interview with PYMNTS, Gary Rohloff, Laybuy’s co-founder and managing director, said one of the reasons the product has exploded is because more and more young people don’t want credit cards and BNPL is “an opportunity for them to buy the things they want or need without the requirement for a credit card and a higher interest rate.”
He said 80% to 85% of the company’s customers across all of their three markets — New Zealand, Australia and the U.K. — use a debit card for their Laybuy installments, and that shift away from credit cards is a consequence of people wanting access to credit without the “somewhat ill-discipline of a credit card.”
In September, the Auckland-headquartered firm launched an app for customers in the U.K., where it launched in March 2019, allowing them to make payments in six instalments at 5,000 retail brands. The launch gave app users an additional zero-interest rate benefit when making the instalment payments at Amazon, eBay, Marks and Spencer and Nike, among others.
Prior to that, the payment processing firm introduced its all-digital BNPL card in the U.K. in partnership with Mastercard, enabling customers to use Laybuy for contactless payment in-store. The card, which can be loaded into customers’ digital wallets, gives users the option to pay with a tap from their phone in-store, rather than being limited to using the usual card at checkouts online.
Rohloff said the firm has developed an omnichannel solution in New Zealand so that customers can enjoy a seamless experience whether they’re in-store or online, and it was only natural to extend a variation of that service to its U.K. market.
“The service that we rolled out in the U.K. is different and somewhat unique because there is no requirement for an integration with the retailer’s point of sale system,” Rohloff said.
“We ride the MasterCard rails, so we just use the contactless hardware install and our digital debit card acts as a conduit between the contactless hardware in store and the Laybuy system for installment payments.”
Today, the company counts more than 750,000 customers and total customer sales (gross merchandise value) for its 2021 financial year jumped by more than 500% compared to the previous year.
UK’s BNPL Regulation is Appropriate
In the U.K., the use of BNPL nearly quadrupled in 2020 to 2.7 billion pounds ($3.6 billion) of transactions, according to official data from U.K. Financial Conduct Authority (FCA),
This has led to the country’s government to launch a consultation setting out plans for BNPL regulation for fear that it pushes shoppers to buy and take on more debt than they can afford.
Rohloff said the company is very receptive to the “appropriate” suggestions made by the U.K. government as part of a review around responsible lending, credit checking, affordability checking and continuous credit reporting regime.
Moreover, from a Laybuy perspective, “we’ve been doing that since the day we started our business,” he said. “We have credit checked people, we have an affordability score that’s part of our credit checking and we’re part of a continuous credit reporting regime.”
He added that unlike Laybuy, credit card companies are incentivized to allow consumers to keep spending so they can charge high-interest rates on their outstanding debt. “If you don’t pay your Laybuy installment, your account is suspended, you can’t keep shopping” he noted.
He also said there is a misunderstanding around the debt risks involved when it comes to BNPL: “Our average order value is only 72 pounds (about $96) [so] you’re not talking about people racking up thousands of pounds of debt with Laybuy,” he said. “These are smaller purchases paid off over six weeks, not large items paid off over three, four or five years.”
Europe Expansion Can Wait
According to Rohloff, there is potential for BNPL across the wider European market and the company will be looking at expanding beyond the U.K. in the future. But for now, the company is “laser- focused” on the U.K. market, where it sees an enormous market potential for retail.
One of the hardest things the firm experienced when it launched in the market two years ago was educating U.K. retailers on the benefits of a BNPL product. “We could show all the case studies from the Australasian market, but it was just so new,” he said.
That has since changed and the new players coming onto the scene show that the product is catching on fast. On how it locks out competitors and protects its turf, Rohloff said the ability to use Laybuy both in store and online is a unique feature it offers its clients.
Customers can also shop at thousands of merchants, including merchants from New Zealand and Australia who ship into the U.K. because “we are currency agnostic,” he said, adding that U.K. customers can shop from Laybuy stores in New Zealand and Australia if those stores ship back to the U.K., giving them access to over 12,500 merchants in Laybuy’s network.
And as the company works to add a variety of retailers to their mix in 2022, he said it will be focusing more on in-store rollout as high street retailers look for ways to get customers back into stores and travel picks up again.
“At the end of the day, it’s the quality of your service and your brand that will sustain you in the long run,” he said.