BNPL firms benefit from a shift to online shopping

Retailers have become more receptive to partnerships with BNPL firms. (Reuters)
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Updated 07 July 2020

BNPL firms benefit from a shift to online shopping

  • As job losses rise and government aid ebbs, the business model will face its first real test in a recession

OHIO: Browsing online during lockdown, Jessica Friend spotted a pair of Ray-Ban sunglasses she liked, but the price tag made the 30-year-old Ohio resident think twice.

What persuaded her to click “buy,” Friend said, was the short-term credit offered by Afterpay, which split the $260 payment into four interest-free instalments.

Afterpay is among a handful of alternative credit firms that offer small loans, mostly to online shoppers, and make their money by charging merchants a 4-6 percent commission.

These buy-now-pay-later (BNPL) firms have benefited from a shift to online shopping during the coronavirus crisis in countries including the US, where state aid has also boosted retail sales.

“I’m more inclined to use them because they make it easier to afford to get the things I want all at once ... and when I want to splurge on something,” Friend said of the loans. Some investors are now betting shoppers will stay away from stores as coronavirus cases rise again in several countries around the world, boosting business for BNPL firms.

But swelling subscriber numbers may also increase bad loans, mainly among first-time users who are more likely to default.

And as job losses rise and government aid ebbs, the business model will face its first real test in a recession.

“Much still hinges on any virus second waves and government wherewithal to keep boosting demand,” said Andrew Mitchell of Ophir Asset Management which owns shares in Melbourne-based Afterpay, whose market value has risen to $12.55 billion from over $100 million 4 years ago.

While a move to online shopping was underway before the pandemic, the shift has accelerated under lockdown and Afterpay signed up more than a million new active US customers between March and early May, taking its overall base there to 9 million.

Meanwhile, retailers desperate to move merchandise have also become more receptive to partnerships with BNPL firms, which unlike credit cards or mortgages, make loans instantly.

Klarna, Europe’s biggest fintech start-up, said that since March enquiries from retailers who may want to partner with it jumped by 20 percent on average globally.

With 7.9 million US subscribers, Sweden’s Klarna has since signed up outdoor gearmaker The North Face, Disney’s streaming service and cosmetics retailer Sephora.

Most of the growth has been in higher-margin discretionary spend categories such as fashion and fitness gear, said Puneet Dikshit, a McKinsey partner in New York, who expects the sector to generate $7 billion to $8 billion in volumes this year in the US, growing by more than 150 percent annually.


India to invest $1.46 trillion to lift virus-hit economy

Updated 15 August 2020

India to invest $1.46 trillion to lift virus-hit economy

  • Modi announced a national digital heath plan under which every Indian will get an identity card containing all health-related information
  • Modi said the government has identified 7,000 infrastructure projects to offset the economic impact of the pandemic
NEW DELHI: India’s prime minister said Saturday his country has done well in containing the coronavirus pandemic and announced $1.46 trillion infrastructure projects to boost the sagging economy.
The key lesson India learnt from the pandemic is to become self-reliant in manufacturing and developing itself as a key supply chain destination for international companies, Prime Minister Narendra Modi said.
“The coronavirus epidemic is a big crisis, but it can’t stall India’s economic progress,’’ Modi said in a speech from New Delhi’s 17th century Mughal-era Red Fort to mark 74 years of the country’s independence from British rule. He wore an orange and white turban with a long scarf around his neck.
He also said that three vaccines are in different phases of testing in India and it will start mass production as soon as it got a green light from scientists. “Detailed plans are in place for large-scale production of corona vaccine and making it available to every Indian,” he said.
India’s coronavirus death toll overtook Britain’s this week to become the fourth-highest in the world as the country reported over 2.5 million confirmed cases, just behind the US and Brazil.
Modi also announced a national digital heath plan under which every Indian will get an identity card containing all health-related information.
The celebrations were curtailed on Saturday because of the pandemic, with invitations going only to 4,000 guests instead of normal 20,000, media reports said.
The International Monetary Fund projected a contraction of 4.5 percent for the Indian economy in 2020, a “historic low,” but said the country is expected to bounce back in 2021.
Modi said the government has identified 7,000 infrastructure projects to offset the economic impact of the pandemic.
“Infrastructure will not be created in silos anymore. All infrastructure has to be comprehensive, integrated and linked to each other. Multi-modal connectivity infrastructure is the way forward,” he said.
He said that India saw a record 18 percent jump in foreign direct investment in the past year, a signal that the international companies are looking at the country.
Modi didn’t refer to China directly, but India is trying to capitalize on its rival’s rising production costs and deteriorating ties with the United States and European nations to become a replacement home for large multinationals.
Referring to border tensions with China in the Ladakh area, he said Indian forces had given a befitting response in the mountainous region where thousands of soldiers from the two countries remain in a tense standoff since May. India said 20 of its troops died in hand combat with Chinese troops on June 15.
“Whether it’s terrorism or expansionism, India is fighting the challenges bravely,” Modi said in apparent references to threats from neighboring Pakistan and China.