Laybuy beating banks at credit

AUCKLAND: In New Zealand, Laybuy cofounder Gary Rohloff says, his company has the lion’s share of the fastgrowing buy now, pay later industry.

Buy now, pay later has quickly become a consumer staple; what it is, is all in the name. Use it and you can get stuff now, pay the bill later.

It is also a rapid form of consumer credit, done online, with amounts to spend approved in minutes and then paid off, usually in six or fourweek instalments after a oneoff payment up front.

In Australia, Mr Rohloff said, Laybuy is a ‘‘credible third’’ in the market, behind an 1800pound gorilla — listed company Afterpay — and an 800pound gorilla — Zip.

After about ‘‘threeandabit years’’ of operating, the company is set to join its mammoth rival Afterpay on the Australian Stock Exchange.

The Laybuy chief executive officer said that he could not talk about about it, with stringent rules around listing on the ASX.

He said listing across the Tasman made sense; it had the most sophisticated buy now pay later exchange in the world, and all the global players were listed there.

The company had just secured a significant debt facility, of $80 million, and was pumping about $500 million in gross merchandise volume annually through the platform. Revenue sat at about $20 million, Mr Rohloff said.

The family — Gary, wife Robyn and sons Alex and James — had risked it all to go global, Mr Rohloff said. Their Auckland home was mortgaged to launch Laybuy; the bank owns everything they have, he said.

The couple own an equal slice of the parent company, Laybuy Holdings, of 24.6% each, while investment company Pioneer Capital owns more than 50%. Pioneer bought into the business in November 2018.

Even the name, Laybuy was chosen with an overseas audience in mind, he said.

What in New Zealand we would call layby — choosing something and then paying it off over time before collecting the goods — in the US and UK was called layaway. Mr Rohloff said they imagined a marketing tagline, why layaway when you can Laybuy?

All for an idea the longtime retail executive (he has headed up Ezibuy, and Number One Shoes) first had in the early 2000s.

Back then, his idea was to get people buying Ezibuy clothes at the start of the season and have them paid off over time. The tech was not up to it then. But it is now.

Behind Laybuy is a credit bureau, Centrix, integrated into its platform, which runs the numbers on prospective customers. Outside New Zealand, Centrix’s partner, Experian, does the same job.

If you look at Afterpay, the elephant Mr Rohloff is loath to name, it is easy to see the appeal of a ‘‘go big or go home’’ strategy.

Afterpay’s 2020 halfyear results showed underlying sales made on the platform more than doubling yearonyear, from $A2.3 billion ($NZ2.48 billion) to $A4.8 billion for the corresponding period, although it still posted a $A30 million loss on income of $A220 million.

Active customers grew even faster; from 3.1 million to 7.3 million, adding almost 17,000 new customers a day on average. Merchants increased 86%. Income was up. Transaction margins increased.

Laybuy reported for the 12 months ended June 30, 2020, that it had more than 5600 active merchants, and more than 470,000 active customers on its platform. Merchants increased 50% yearonyear while customer numbers grew 110% over the same period.

The biggest complaint about the buy now, pay later industry is the same thing that fuels its growth — the ease of use, and its success in converting Millennial shoppers into smalltime credit consumers.

Crucially, unlike a credit card or loan, there is no interest over time applied to the amount borrowed.

But there are penalty fees if you miss a payment.

Afterpay, the Australian giant, earns a chunk of its income from default fees, and consumers’ failure to pay the regular payments.

Laybuy charges those fees in lieu of interest; it charges a late payment fee of $10 for missed payments. Where it starts to add up is if you do not make up that payment within seven days, that is another $10 penalty. Penalties are capped at $60.

Afterpay has a slightly more complicated fee model. For purchases under $40, a $10 penalty fee is applied once. Defaults on orders above $40 can be charged up to $68, or 25% of the original order value.

It capped penalty fees after it was criticised in Australian media for some borrowers’ ballooning penalty payments, and there are calls for more regulation and better oversight.

You can trace the impact of the cap in Afterpay’s financials. It used to earn about 25% of its income from penalty fees two years ago. In 2019, the company said it accounted for about 20% of income, and for the first half of 2020, about 16%.

Mr Rohloff did not say what proportion of its income was derived from late fees but said defaults in New Zealand were under 1%.

Both companies earn money from retailers paying a percentage of the transaction, similar to credit card companies.

Most of the negative noise about Laybuy is made by the banks, losing credit card profits, he said. — BusinessDesk