Is online financing the death of the credit card?


Instant online financing at the point of sale could turn out to be big business for the small end of town, especially if companies like Afterpay, zipMoney and Affirm gain further traction. And for a generation yet to be weaned onto credit cards, it could mean a shift in personal financing trends away from the trusty plastic card and towards more flexible and ‘cheaper’ alternative providers.

Retail financing is certainly nothing new – department stores and larger retailers have been doing it for years. Only in the past, it often required cumbersome paperwork, a sales person tied up for 20 extra minutes or, more frequently, a requirement by the customer to sign up for yet another branded store credit or charge card. But what about those customers who don’t step foot inside a physical shop? Enter online financing.


Affirm is the big player in the US, and is currently headed up by Max Levchin, co-founder of PayPal. Integrating with online checkouts, the platform allows customers to take out loans directly at the point of purchase, reducing cart abandonment and increasing basket size. Of course, there are no free lunches in finance, and someone has to pay. In Affirm’s case it’s the user, copping between 10 and 30 percent APRs over the lifetime of the loan.


zipMoney, which listed on the Australian Stock Market (ASX) via backdoor listing last September, offers a similar product to Affirm. Claiming to have over 150 online merchants on its books, it’s data shows merchants on average see a 50 per cent increase in basket spend and a 20 per cent overall increase in sales. Not a bad result in an increasingly competitive online retailing market. Users can expect a honeymoon interest free period followed by, well, we’re not quite sure. The website is rather non-transparent on its APRs, leaving customers to no doubt sift through terms and conditions once they’ve signed up. If they ever do, that is.


Afterpay has taken a slightly different approach to the local Australian online financing market, choosing instead to only charge the customer the advertised purchase price, broken down into 4 monthly instalments. Instead, the retailer pays for the cost of the financing. The company intends to list soon on the ASX, issuing 25 million shares with an offering price of $1.00 per share. For those keen to get a slice of the online financing market in Australia, Afterpay’s prospectus can be accessed here. Given zipMoney is currently trading at around the $0.40 mark, it may be interesting to evaluate the companies side by side.

Online financing has its detractors, with many arguing it’s just another easy debt trap for the less well-heeled. Interestingly, a quick search of a few forums suggested those who had applied for finance through more traditional means and were declined, often found they were accepted via an online financing provider. There’s nothing wrong with this, one just hopes, for investors sakes, that online financing outfits know how to price that risk correctly. Either way, for small business to compete against their larger competitors, online financing will no doubt soon become a ‘must-have’ check-out addition, in-store and online.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

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