Afterpay, and now Flexigroup, are changing the face of consumer credit. In the old world, someone who didn’t have funds available for a medium sized purchase either went without or went into debt. Any costs associated with that debt was borne by the consumer. It was a customer-pays funding model.
Buy now, pay later has changed all that. The new world is a retailer-pays model. When a customer buys a new suit using Afterpay, the retailer pays a 30 cent transaction fee, plus a commission ranging from 4-6% of the sale price. That’s how Afterpay makes money – err, intends to make money – providing ‘free’ funding to consumers.
This is a hefty burden for the retailer versus the transaction costs associated with a more conventional sale, typically in the range of 1-1.5% whether by credit/debit card or cash.
Of course, retailers aren’t charities. They’ll try to push up the sticker price to compensate for the increased cost burden. Whether they’re successful or not, one thing is evident. Those of us with the ability and desire to pay upfront are subsidising the funding of those using the more expensive buy now, pay later approach.
Afterpay and now Flexigroup are changing consumer credit from customer-pays to retailer-pays. It's time those of us with the ability/desire to pay upfront start asking for discounts. Otherwise we're subsidising buy now pay later. 5% is about right. Don't ask, don't get.
— Gareth Brown (@forager_gareth) February 26, 2019
Retailers are clearly happy to make the sale via Afterpay even if their net proceeds are 3-5% lower. As a matter of principle, I’m going to start asking for 5% discounts for upfront payment wherever buy now, pay later is offered. I don’t care about the few bucks. But I do care about subsidising some snivelling hipster into trousers that are three inches too short. Enough!
Problem is, I’m not much of a discretionary consumer. A pair of jeans and a few plain t-shirts from Kmart annually, and a suit every few years. The rest goes on kids, rent and Sydney tolls.
So can we make this a collective effort? Let’s make the comments section of this post a depository of our successes and failures in getting discounts for paying upfront. Let us all know how you go.
As Mr Micawber once said:
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result – subsidising Millennials….
Or something. It’s time to end this rort.
Ready to invest?
Visit this page for more information on how to invest with Forager.
Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.