Jul 08 2019
Visa announced that it plans to enter the buy-now-pay-later services sector, despite subdued household spending in Australia. The sector is becoming increasingly saturated, with players such as Afterpay and zipPay already established and holding relationships with major retailers.
“The buy-now-pay-later services sector has expanded rapidly over the past five years. Buy-now-pay-later services such as Afterpay and zipPay have become more popular as major retailers in Australia, including Jetstar, Bunnings and JB Hi-Fi, have increasingly offered them in a bid to capture shoppers who do not use credit cards,” said IBISWorld Senior Industry Analyst, Nathan Cloutman.
According to ASIC, 1.9 million transactions were conducted using buy-now-pay-later services in June 2018, with approximately two million consumers using buy-now-pay-later services in the same year.
“Buy-now-pay-later services provide credit to consumers at a considerably cheaper rate than credit cards. Several factors have supported these services’ rising popularity, including easier and more secure electronic payments, rising demand for online shopping and subdued consumer demand for taking on credit card debt,” said Mr Cloutman.
The popularity of buy-now-pay-later services has been a key factor in driving consumers away from credit cards over the past five years. Demand for credit cards is anticipated to continue falling in the current year, with revenue for the Credit Card Issuance industry expected to decline by 0.5% in 2018-19, to $9.5 billion.
“Buy-now-pay-later services have generally made it easier for shoppers to spend money. The quick and simple application process creates a positive user experience, which has encouraged users to keep using these services. As a result, consumers using these services are spending more and purchasing more frequently,” said Mr Cloutman.
ASIC’s recent findings on buy-now-pay-later services also revealed that:
- More than 50% of consumers who use these services now spend more than they were previously spending
- Transactions are becoming smaller and more frequent
- The average transaction value for buy-now-pay-later services fell from $1,098 in April 2016 to $178 in June 2018
“Despite the ease with which buy-now-pay-later services allow consumers to purchase goods, falling property prices, weak wage growth and rising healthcare costs have contributed to softer household consumption. These trends have led the Reserve Bank to cut the cash rate in July 2019, to a historic low of 1.0 per cent,” said Mr Cloutman.
Pure-play online retailers are starting to struggle compared with multi-channel players. While revenue for the Online Shopping industry is still expected to increase by 9.3% in 2018-19, to $23.7 billion, this growth is significantly weaker than the 17.0% growth recorded in 2017-18.
“Multi-channel players have benefitted from providing consumers flexibility and more interactivity by operating both bricks-and-mortar stores and digital channels, such as direct-to-consumer ecommerce sites, mobile apps and eBay. This strategy allows multi-channel retailers to complement their physical and digital offerings to attract shoppers, something pure-play online retailers cannot match,” said Mr Cloutman.
According to IBISWorld, pure-play online retailers are forecast to increasingly adopt a multi-channel strategy to engage and connect with customers over the next five years. More online players are anticipated to open up flagship brick-and-mortar stores or pop-up shops that act as showrooms in an attempt to drive sales over the period.
IBISWorld reports used in this release:
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