Fistfuls of bags, bustling crowds, and shiny aisles full of things you don’t need. It’s an environment we’re all familiar with. But increasingly, it’s one a lot of us are trying to avoid.
The suburban shopping centre was once the epicentre of consumerism — a lively hub where you could spend the day catching up with friends while fulfilling all of your materialistic desires.
Indeed, before online shopping swept in and stole the show, shopping centres were the ultimate retail experience. Just decades ago, no one could conceive of buying something you hadn’t first held in your hands. And the maze-like design was an adventure, rather than a hassle.
But when you could sit in the comfort of your own bed, sans clothes if you feel like it, and scroll through endless shopping possibilities with no bothersome retail clerks in sight, why would you possibly return to the former?
Particularly when online shopping offers items, deals and payment plans that simply don’t exist in the physical world?
There’s simply no competition. And that’s where Afterpay Touch Group comes in.
Founded in 2014, this Aussie company is a pioneer in the future of retail. The buy now, pay later model not only caters to the growing digital consumer base, but exploits our very human tendency to make poor and impulsive decisions.
Afterpay is well aware of this and has created a very intelligent business model centred on it. I mean, making profit off people’s drive to consume and live above their current means? What could be more successful than that?
That being said, most people are able to use the service with no need to pay the late fees that are so clearly stated when you make purchases with Afterpay’s service. Not to mention that one third of Afterpay’s revenue comes from the merchant fees it charges the brands who use their service.
But the Aussie government of course, in their shining armour, had to put their foot in that.
In October last year, a parliamentary inquiry was launched after ASIC labelled Afterpay as a financial service that might target Australians at risk of financial hardship.
No new regulations were introduced in the end, as Afterpay clarified that they were not a credit provider, but a ‘budgeting tool’ that levies late fees rather than charging interest. But ASIC did reveal the following findings about Afterpay users:
- ‘81% of users agreed BPNL arrangements allowed them to buy more expensive items than what they could afford in a single payment;
- ‘70% agreed BNPL allowed them to be “more spontaneous”;
- ‘64% agreed BNPL enabled them to spend more than they normally would; and
- ‘About 16% had either become overdrawn, delayed bill payments or borrowed more money because of a BNPL debt.’
None of these findings were a shock. Nor do they indicate that businesses like Afterpay are a danger to society. ASIC was only able to tell us what we already knew.
The truth is that people will sometimes make poor, impulsive financial decisions — whether it be on flights for a holiday or a new dress. But importantly, making mistakes is our human right. And for the government to restrict and attempt to shut down certain businesses in the name of protecting those they deem too unintelligent to be able to use such a service is, in my humble opinion, borderline insulting.
Afterpay’s business model is so popular due to how efficient it is. If the government were to enforce credit checks before purchases, people would likely gravitate back towards credit cards — an option which is no better than the buy now, pay later model. It’s a move that would needlessly punish the business and the vast majority of people who use it with no hiccups.
But despite lawmaker’s recent attempts to curb Afterpay’s success, the business is thriving. And recently, has been the talk of the town.
The next generation of shopping
Afterpay shares on the ASX surged 7.08% on Wednesday to a high of $23.90. This is on the back of the company’s announcement on Wednesday which revealed that 1.5 million Americans across 3,300 retailers now use their services.
Co-founder and chief executive Nick Molnar also announced that the company had made deals with iconic fashion brands like Levi’s, Ray-Bans and O’Neill.
That’s not all though, as the announcement continued:
‘The company’s strong US growth continues with over 1000 further merchants in the process of integrating the Afterpay platform to offer their customers a better shopping experience…’
Afterpay’s rivals were also up on Wednesday, with Zip Co up 6% to $3.16, and Splitit up 8% to 79 cents.
With these buy now, pay later companies growing at a speed akin to a Silicon Valley start-up (in the last five years Afterpay’s stock has gone up 718%) it’s clear that traditional retail is truly on its last legs.
Currently, one in every four Aussie Millennials use Afterpay’s service. And the company accounts for 10% of all online Australian sales.
There’s no doubt Afterpay understands Millennials and how to market to them. Millennials are time poor, often financially strained, and gravitate towards efficient digital solutions. But more than that, they are susceptible to being herded like sheep toward the will of online influencers.
Which is why when the Kardashians decided to add Afterpay to their sites late last year, the game changed completely. With one tweet and an Instagram post, millions of Millennials were introduced to the buy now, pay later model by perhaps the most powerful influencer of this generation. And it has paid off.
As Afterpay Co-Founder Nick Molnar confirmed:
‘Everyone thinks Millennials are fickle and disloyal but the reality is they are overly loyal to brands that earn their support and are spending money differently to any previous generation. And if you look at Gen Z, they will shop online even more and they are even more averse to credit.’
Clearly, the future of retail is already in full swing. And there are plenty of up and coming businesses ready to take advantage.
Overall, this is definitely a space to watch.
This week in Money Morning
To make real money you’ve got to be looking for opportunities that others aren’t. It’s incredibly hard to find opportunities that deliver really big gains if it’s something everyone else is trying to do too. Which is why, as Harje wrote on Monday, sometimes the best thing to do is leave the pack and forge your own investing path.
To learn how, click here.
Then on Tuesday, Harje explained the importance of keeping an eye on the latest market trends. Right now, there is a whole new generation coming of age. And a lot of them don’t shop in store. They shop online and listen to influencers. It’s this market you should be aware of when hunting for that next big idea…particularly when it comes to your investing decisions.
To read the full story, click here.
While a credit card can be useful when used properly, most Aussies don’t have a good relationship with money. So they’re better off opting for a debit card instead. This is wonderful news for companies like Afterpay. It’s not so great for banks though. So could credit cards become obsolete in the future?
Harje explores this thought and more in Wednesday’s Money Morning.
We’re approaching a point of no return. Unless we do something and do it fast, we’ll all be doomed! Have you heard this kind of talk before? First it was about global warming, and now this rhetoric is headed for 5G technology. But is there some truth to it?
Harje answers this question and more in Thursday’s article.
Then on Friday, Harje wrote about the first mover advantage. The idea is based on the premise that the first mover has no competition. They can accumulate resources and build infrastructure that acts as fixed costs, barring new entrants from jumping into the industry or niche. So what new opportunities like this are on the ASX currently?
Click here to find out.
Until next week,
Editor, Money Weekend