Giving Layaway A Digital Reboot

installment plans consumer

In the 1930s, in the era of the Great Depression, when consumers had little extra cash, retailers nationwide came up with an innovation to make it easier for people to shop without having to pony up cash right away. It was called layaway.

Though different shops had different nuances in how they ran their programs, structurally, they were all similar. Customers picked out the goods they wanted and placed a down payment on them so that the store would hold them for a set amount of time. The customer would then pay off the purchase over the course of a few weeks or months until the full purchase price had been paid.

After its birth in the 1930s, layaway had a long run in the U.S., but after almost 50 years, it began to fade out in the 80s, disrupted by the emergence of store-branded credit cards. Similar to layaway, they offered customers another option to purchase items without having up-front cash — but instead of offering the option to pay now and buy later, the cards reversed the order of operation and allowed the customer to buy now and pay over time later.

Pay over time — and with interest, Anthony Eisen, CEO and managing director of Afterpay, noted in an interview with PYMNTS.

“Millennials want something different,” Eisen said, noting that while more flexible payment options are a desirable offering, debt traps and the ability “to kick the can down the road in terms of payment and get into real trouble later” aren’t appealing to anyone. And if the credit options don’t appeal to consumers — and, in the case of younger consumers, even makes them actively hostile — that means they also aren’t working for the brands that offer them.

“We founded Afterpay with the idea that this isn’t a credit product — it’s a financial management tool for customers and a recruitment tool for retailers who are looking to enhance how they interact with the consumer,” Eisen said.

It is, in effect, layaway for the modern-day — and it has already been a game-changer for consumers in Australia, where it launched. Now, 16 months into their U.S. expansion, Eisen said, Afterpay is seeing the ability to motivate a similar sea of change among American consumers.

The Best Of Both Worlds 

The problem with layaway, Eisen said, is that while it does a good job of providing for financial control, it lacks that all-important element of instant gratification that generally comes from shopping. That’s how store-branded cards got their advantage in the first place, he noted, that feeling of satisfaction of actually having the product in one’s hand is a powerful motivator.

“What we are trying to build and offer in some ways is like the purest form of layaway, redesigned for the digital era,” he said. “They are getting their goods up-front, but they aren’t paying anything extra for the good or the service. Instead of creating debt and then paying extra for that debt, they are paying it all off in a short installment period.”

The ability to make that offer is rooted in digital technology, said Eisen, because it allows them to take a broader purview of the consumer, assess their repayment capability and extend them the necessary funds to make specific purchases. The consumer is protected from their eyes getting too much larger than their wallet, while the retailer can appeal to the consumer with increased buying power as Afterpay takes on all the risk of repayment.

And while that sales pitch initially resonated with millennial and Generation Z consumers, Eisen noted, they’ve seen in recent years in Australia that this mode of buying is becoming increasingly popular with all demographics. Afterpay has logged 138 percent growth in the last year alone, as consumers of all ages flock to a flexible payment option that is premised on helping them, not trapping them in debt.

“Wanting to be able to go and buy what you want, when you want or need it, isn’t just a millennial trait,” he pointed out. “This is something we have seen in every demographic.” This is why, he noted, the agenda for 2020 is about bringing that option to even more consumers.

Building Out 

Afterpay is a year and a half into its U.S. expansion and so far, so good, Eisen noted. Point-of-sale financing products have become more commonplace in the U.S. in recent years, with players like Affirm and Uplift building buzz among consumers for their installment loan products — but Afterpay is something of a horse of a different color.

It isn’t designed as a loan product: The repayment terms are compressed, and the focus isn’t on four- or five-figure purchases. Afterpay is more of a financial management tool targeting purchases of a little over $100. Generally, Eisen noted, their retail partners get the word out about the availability of this fee-free financing. Once consumers are aware, they generally begin organically searching the platform for other Afterpay merchants.

Though there is an awful lot of focus on how to change consumer behavior, Afterpay has realized that customers don’t need more information — they need better tools. And they have built their product around that idea.

“The question for us is how do we deliver a great retail product that speaks for itself,” said Eisen. “Customers need to know instantly why we are different — it is not about trying to teach people how to act, behave or pay.”



About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.