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Ragtrader investigates the rise of diversified payment options. Do they work?

“Things may come to those who wait, but only the things left by those who hustle.”

That was according to late American president Abraham Lincoln.

If the ‘buy now, pay later’ market is anything to go by, the sentiment rings true for Australian fashion retailers.

According to research from Australia Post, it is estimated the service accounted for 7.7% ($1.6 billion) of total online goods spending in 2017.

Fashion shoppers were among those most keen to use ‘buy now, pay later’ services, accounting for 57% of purchases.
This hustle for online market share has reaped benefits for retailers.

For Accent Group, the addition of a buy now, pay later option across its brands has seen a 10-15% increase in conversions.

The solution has also contributed to higher average transaction values across Australia.

Accent Group chief digital officer Mark Teperson says the technology has a much higher success rate online because of the ability to present the option to consumers in the consideration phase and the lowered impact of merchant rates online.

“The adoption rate online is much higher than it is in-store. Online, it can represent anywhere between 30-50% of all online transactions which is a staggering number in a short period of time.

“In-store, it’s much lower, you’re still talking about low to mid-single digits in terms of its uplift and its penetration in stores.

“Online, the buy now, pay later method is presented to the customer on the product detail pages so when consumers are still in that consideration phase, you’re alerting them to the fact that it’s not $100, it’s small equal payments.

“In-store, it’s a little bit different, I think one of the challenges is because the merchant rates are much higher than what you pay for standard credit card transactions in-store.”

As a new payment option, a buy now, pay later solution requires integration into existing point of sales (POS) which can pose challenges if retailers aren’t prepared for the need to invest in proper integration and training for staff on how to use the payment option.

Tony Bianco digital marketing manager Beth Auty says the implementation of the payment solution for both in-store and online sales required some operational adjustments for staff to help integrate it successfully.

“Tony Bianco offers it in-store and online and it has grown phenomenally. In terms of adjusting operations, there were some changes that had to be done to accommodate the new technology including training of customer service teams and our store staff.

Teperson adds that it is crucial to work with your existing POS providers in order to ensure that the integration will operate smoothly with existing systems.

“When we rolled it into The Athlete’s Foot, we very quickly rolled it out into the rest of our store network and we now have it operating in over 400 stores across the country.”

One of the big reasons behind the success of buy now, pay later solutions is consumer demand and the desire to have a variety of payment options available to consumers as retailers look to improve their position in a tough marketplace.

The Iconic chief marketing officer Alexander Meyer says that introducing the option for buy now, pay later has opened the brand up to a new cross-section of consumers but also warns that retailers need to be aware of the financial repercussions for both retailers and consumers if finances are mismanaged.

“Our customers are at the heart of everything we do at The Iconic, so it was important for us to provide them with a buy now, pay later solution they were actively seeking.

“Our customers love having it as a payment option as it gives them the flexibility to choose exactly how they shop with us.

“Being able to split payment over instalments gives customers more accessibility to a greater range of products as they’re able to purchase items they may not have considered if they were required to pay 100% up front.

“That said, it’s important for customers to understand their own finances and spend accordingly as buy now, pay later options can have serious financial repercussions if mismanaged.”

Auty says that for Tony Bianco, the business views it as another payment option and one widely embraced by its target demographic.

“Tony Bianco allows customers to use it on any transaction size, there are no minimum or maximum spends needed to meet the requirements.

“We don’t see that it is necessary to restrict customers, the business views it the same as any other payment method.”

Teperson adds that for brands or retail groups who have a diverse consumer base, its important to make the approach to POS as accessible as possible to ensure that the consumer is at the centre of the business’ approach.

He also says that buy now, pay later platforms need to prepare to innovate further to ensure that they are still generating value for retail partners.

“I think in the spirit of trying to be customer-centric and customer-friendly about this, we try not to impose minimum thresholds and spend limits, we don’t believe that is a customer-centric approach.

“I think the biggest challenge is that once the platforms reach maturity and you start comping those increases that you had on conversion rates and average transaction values, I think they will over time come in line with the rest of the business.

“This means it will put cost pressures on the business in terms of the cost of doing business because it is no longer seeing those incremental lifts at the same scale that you were in the early phases of implementation.

“At that point, buy now, pay later platforms need to find new ways of engineering value for their retail partners and I think that’s the biggest challenge that they’re going to face as the market matures.”

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