Harvey Norman Holdings Ltd [ASX:HVN] and Latitude Financial Services announced yesterday they are partnering together to offer Latitude Pay.
What is Latitude Pay?
Latitude Pay is a buy now pay later service.
The way it works is very similar to a credit card, except that you don’t pay the full balance at the end of the month.
Consumers find these schemes attractive because they can pay for their purchases in several installments interest free. That is, as long as you pay on time.
In the case of Latitude Pay, customers can spend up to $1,000 and pay this back in 10 installments over 10 weeks. Missing a payment will cost them a $10 fee.
Buy now pay later services usually make a chunk of their money by charging retailers fees. And that’s what’s different about Latitude Pay’s proposal.
Latitude Pay is looking to appeal to retailers by promising not to charge them any fees for purchases under $250 until 2021. Any purchases over this amount will cost merchants a low 1–3% fee.
It’s a clear move to compete with rivals like Afterpay Touch Group Ltd [ASX:APT]and Zip Co Ltd [ASX:Z1P]. Latitude Pay is looking at taking more market share by charging merchants lower fees.
The fight for your wallet
Competition between buy now pay later schemes is heating up. Not only are they competing against each other, but against major bank credit cards.
According to Finder, credit card numbers in Australia have dropped by 5% between December 2017 and December 2018, while the number of people using buy now pay later services increased from 400,000 in 2016 to 2 million in 2018.
Buy now pay later schemes offer easy payments to help retailers get more customers into their stores.
Even with the recent interest rate cuts and tax cuts, retail is still struggling. Consumers are carrying too much debt and salaries are stagnant. Then there is the negative wealth effect (when rising property prices make households feel richer) as property prices have been decreasing.
Latitude Pay is the latest fintech taking on competitors like Afterpay and challenging the big retail banks.
For Money Morning