Afterpay: How COVID Is Reshaping Payments

Afterpay - What Did You Change?

Similar to what occurred after the 2008 financial crisis, the COVID-19 pandemic has spurred a shift away from credit cards, notes Akash Garg, CTO of Afterpay. “Afterpay’s data has shown a significant shift to debit over the COVID-19 period, beginning in March — with nearly 90 percent of customers now electing to use their debit cards to pay over time,” says Garg. He discusses how the firm’s buy now, pay later (BNPL) business model enabled it to be better prepared for the digital shift.

The following is an excerpt from What Did You Change?, contributed by Afterpay CTO Akash Garg.

This year’s very unfortunate pandemic has actually accelerated our business. Because of Afterpay’s founding principles and our business model, we were more prepared for this event than we expected —which allowed us to “double down” on our approach to payments instead of having to pivot.

Afterpay’s business was built out of the ashes of the 2008 financial crisis. Our founders, Nick Molnar and Anthony Eisen, both witnessed the impact of that devastating recession, which made so many people wary of credit products and loans. In fact, many young people who watched their parents struggle with loans and debt emerged from that time with a clear aversion to credit, interest and long-term debt.

Nick and Anthony reasoned that consumers, especially within the younger generation, would be more apt to buy things they wanted and needed if they could use their own money and pay over time, in a way that didn’t involve loans. And if the payment solution drove more buyers, especially valuable millennials and Gen Z buyers, retailers would be willing to pay for it.

Fast-forward to today, when there has been an obvious acceleration in online spending but also a tangible shift away from credit cards — just like in 2008. Millennials and Gen Zers are demonstrating a clear aversion to financial risk, especially for lifestyle purchases.

Afterpay’s data has shown a significant shift to debit over the COVID-19 period, beginning in March — with nearly 90 percent of customers now electing to use their debit cards to pay over time. Similarly, in Visa’s most recent June quarterly results, the company announced a sharp decrease in credit card usage compared to debit. Credit card payment volume dropped 20 percent, while debit card payment volume rose 3 percent.

With the significant shift to both online shopping and debit card spending, retailers have responded by giving millennials and Gen Z buyers the option to spend in the ways they prefer. This means mobile shopping, social shopping and an option to use their own money and pay over time.

It is for these reasons that we see “buy now, pay later” (BNPL) solutions being so rapidly adopted around the world. In fact, according to Worldpay’s FIS 2020 Global Payments Report, BNPL solutions are poised to grow by 28 percent in major markets around the world.

It’s encouraging to see that, amid this terrible pandemic, consumers are choosing to use their own money in a safe and responsible way. Financial wellness and budgeting will continue to be the future of payments.