Laybuy co-founder Gary Rohloff says buy now pay later providers shouldn’t fear any future regulation and it is part and parcel of being part of the wider consumer credit industry.
The New Zealand company was launched in 2017 and last year officially announced its expansion into the UK, with future plans to grow its operations in Europe and the US. According to Rohloff the company has carried out NZ$180 million in transactions globally since it started two years ago.
In January this year the Minister of Commerce and Consumer Affairs Kris Faafoi said the proposed changes to the Credit Contracts and Consumer Finance Act (CCCFA) wouldn’t cover buy now pay later providers. But Faafoi said he wanted to include new powers in the reforms to allow him to regulate new credit products like buy now pay later providers if needed.
He said the Government had looked at the new products as part of last year’s review of the Credit Contracts and Consumer Finance Act (CCCFA), but the Ministry of Business, Innovation and Employment (MBIE) found no evidence as yet of serious harm. The Commerce Commission said buy now, pay later products are not consumer credit contracts and providers are not subject to the primary consumer protection provisions of the CCCFA. But the commission said there is potential for such products to cause consumer harm and was aware of the report completed by Australian Securities and Investments Commission (ASIC) late last year.
Rohloff is philosophical about any future regulation of buy now pay later providers.
“Regulation is not something that anyone should fear. It’s something that you should embrace because you have a chance to be a part of it.”
And unlike some of the other providers in the market he isn’t trying to deny Laybuy is providing credit as part of the wider finance industry.
“Well I think we have to be [part of the industry] because we’re relying on their input to make value judgements on a person’s ability to repay, or the affordability of the credit and therefore you have to align to the industry and be a part of that.
“Any of the traditional layby models that I’m old enough to remember were a function of credit extension and that’s no different to what we’re doing. But the most important element is we’re always interest free.”
Buy now, pay later allows consumers to purchase and obtain goods and services in-store or online immediately, but pay for the purchase over time. And while there are no interest charges, there are penalty fees for late payments.
The companies advertise on their websites which retailers they are working with for their particular buy now, pay later service.
Each provider has a different fee structure, but common fees include establishment and redraw fees, regular account keeping or administration fees, payment processing fees, missed payment fees and account closure fees. While some do not charge any fees if consumers pay on time.
Australian provider's global expansion
And despite Laybuy’s lofty UK growth strategy it won’t be alone. Australian company Afterpay Touch has been making headlines across the ditch for its astronomical growth. It has also expanded into the US and UK markets.
According to news site www.bankingday.com Afterpay Touch has signed a US$300 million receivables funding facility with Citigroup, which will be used to support its expansion into the United States market.
The company said the new facility would complement its existing A$500 million Australian receivables funding facility and NZ$20 million facility. Australian and New Zealand funders are NAB, Citi and ASB. In the 2018 financial year Afterpay Touch recorded a net loss after tax of A$9 million versus A$9.6 million in 2017.
Rohloff describes the growth of Australian company Afterpay as stunning, but says he wasn’t trying to replicate it with Laybuy.
“Afterpay is an outstanding performer, there’s no question of that,” he says. “But the idea of this Laybuy concept was something we tried to do back in the early 2000s when I was running a company called EziBuy in New Zealand.
“So this idea had been on my mind since early 2003. What we couldn’t do back then when we were looking at it with EziBuy was credit check digitally. It was all paper based and people based so the economics were too tough to make it work.”
But he says with changes in technology and the growth of digital credit scoring Laybuy became a reality in 2017.
He’s pretty confident of the make-up of Laybuy’s target market in NZ and globally and why they like buy now pay later.
“We have two bubbles in our data base. We have a bubble between 22 and 32 years of age and then we have another bubble at 45 plus. So the 22 to 32 is pretty easy to understand. The 45 plus comes down to two groups, they are families looking to find a way to afford, or find a way of budgeting for products that they need and the others are savvy shoppers who see this as a smarter to shop because it’s interest free.”
Rohloff says he’s pretty sure why younger people like buy now pay later.
“In today’s world millennials particularly and those in Generation Z, I think the marketing guys call it, they don’t like credit cards. They’ve seen the downside of credit cards and the high interest rates that they charge.”
When asked if Laybuy is looking at publicly listing the company in NZ or UK he says it not on the radar.
“That’s not something we have considered in the short term. We raised equity at the end of last year via a NZ based private equity company called Pioneer Capital. They are an outstanding equity partner for us.
“So listing is not something on our radar in the near term, but you never say never do you? We’ll see what happens.”
Rohloff says the majority of the company’s revenue comes from retailers who pay to use their services. Laybuy announced in February a deal with UK retailer Foot Asylum and he says they are currently in final negotiations with a couple of other major retailers. Rohloff claims it has already carried out 1.5 million pounds in transactions in the UK since October.
When asked if Brexit could impact Laybuy’s expansion into Europe he says he’s not too worried.
“I don’t think anybody knows what Brexit means right now. Look, at the end of the day you can only deal with what you see in front of you. We are not concerned about what happens with or without Brexit, we’ve just got to keep doing what we’re doing. And the access into Europe is still there.”
But he remains confident that buy now pay later has a strong future and says it’s not the first time new products have been written off before they’ve had a chance to gain a foothold.
“I’m old enough to remember when we were still writing our cheques and people said Visa and Mastercard wouldn’t take off.”