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Why Fashion’s Payment Strategies Should Become More Consumer-Centric

The co-founder of Afterpay, which has 48,000+ retail partners including Revolve, Fenty Beauty and Asos, shares how younger consumers’ purchasing behaviour is evolving and the growth levers rethinking payment strategies could represent for retailers.

MELBOURNE, Australia — Having met by chance as neighbours, co-founders Nick Molnar and Anthony Eisen founded Afterpay in 2014. Molnar, previously a top jewellery entrepreneur on e-Bay and Eisen, a financial services professional, saw the need for a new way to pay in the market. They believed that younger consumers would prefer to use a payment solution based on fairness and transparency that allowed shoppers to use their own money over time, without going into debt or taking out a loan.

As a Millennial himself, Molnar has an innate understanding of the needs and concerns of younger consumers, augmented by his career as a retailer, while Eisen has extensive experience in financial services. Over the last six years in business, this expertise has helped to attract and retain top global retailers, with more than 48,400 merchant partners signed up, which include Urban Outfitters, Ulta Beauty and Asos.

“The overwhelming majority of younger consumers, including the older Gen-Z cohort, which is incredibly averse to credit, have a preference to spending their own money. Everyone’s looking at ways to control their money in the right ways,” says Co-Founder Nick Molnar.

Now, BoF interviews Molnar to hear how consumers’ purchasing behaviour is changing and why he believes the payment space in the fashion industry should evolve to reflect the shifts in sentiment.

How is the payment solutions market changing?

The beginning of 2020 has had a double-compounding effect for the Afterpay business, relating to two key things: online growth accelerating and the preference towards people spending their own money on debit cards instead of credit cards. There’s a lot of data points out currently around how, in the last eight weeks, we have seen ten years’ worth of online sales growth [in terms of volume]. Eighty-five percent of our consumers use debit cards, which has now actually accelerated to 90 percent as a result of that shift. We have seen both of those two components flow through the business.

Our business was established on the back of a shifting preference towards debit over revolving credit that occurred because of the 2008 crisis, so the next wave of transitions now starting to take place is really interesting. It used to be just a Gen-Z and Millennial preference but now, as our average customer age gets older, it’s really starting to spread across all generations.

What are the most significant consumer trends you see being born out in your data? How do you believe they will evolve?

Financial wellness is really important and everyone’s looking at ways to be budget-conscious. From a Millennial perspective, given two out of three Millennials do not actually own a credit card, they have no affiliation with these types of programmes and this is just starting to drive through the numbers directly correlated with income. The reality is, the average Millennial is now in their mid-30s. They are getting older and starting to hold a far more prominent portion of the economy.

The overwhelming majority of younger consumers, including the older Gen-Z cohort, which is incredibly averse to credit, have a preference to spending their own money. You see that continue to grow as their income levels do. As new forms of payment become more present, given Millennials will earn half of all disposable income in the US, the UK and Australia in three or four years, it’s really important that the fashion industry adapt the service offering to reflect the consumers’ demand.

What growth levers could retailers potentially see from rethinking payment strategies?

I think the most important lever that [brands] have at the moment is to try and maximise margin in a world where there's increased competition for voice. By splitting a $100 transaction into four payments of $25 every two weeks, it allows the consumer to better digest making that purchase and how they can budget to make those payments in the future.

The ability to simply provide a value proposition that is in the consumer’s favour, that allows them to make that purchase today rather than wait to make that purchase tomorrow, is an amazing value proposition for today’s environment. At the same time, to do it in a way where financial wellness is at the forefront for consumers and for ourselves, is a great message from the perspective. Ultimately, we’re all rallying here to provide flexibility and options for our customers.

What insights does Afterpay’s focus in fashion and beauty enable it to share with partners?

We partner with our retailers as closely as possible, sharing insights around how generational indexes are trading and how different categories are trading at different points in time. Obviously, through this crisis, we have seen a shift towards beauty, home, sports, etc. Some brands want to sell more full-price transactions than discount, and we can serve that purpose through Afterpay. Some want to attract a Millennial consumer; some want to drive more frequency or drive more units per transaction; some want to drive lower return rates. All businesses have different objectives, and the beauty of Afterpay is that it touches multiple different facets of the key value proposition for retail.

But from our perspective, it is: "how do we really partner with our brands?" "How do they look at us as a marketing channel, not just a payment product?" In the US, last month, we sent ten million leads from our shop directory to our retailers. Customers actually come directly to and our app to shop. In Australia, there is a group on Facebook called "We Love Afterpay." One percent of the Australian population are part of these fan groups. No-one really says they love how they pay for something, but there is this cult-like following for Afterpay. That is where we can really partner with our retailers to drive significant value and new customers to their brands.

How could next-generation payment strategies support efforts for the fashion industry to adopt more sustainable business practices?

Starting at our core reason for being, the ability to reward on-time payments to build an economy where everyone wins is fundamental to our purpose. We have been very focused from our own personal perspective to partner with brands that are leading the sustainability movement across the world. Whether that is Rothy’s or Reformation — we work with a variety of amazing brands that are taking that lead. How our consumers — particularly Millennial and Gen-Z customers — react to that has been fantastic. Sustainability from our side is a core focus of our business, and how we support the right brands and present that to our consumers in a meaningful way through all our assets and our network, has been top of mind.

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