FinTech
‘Buy now, pay later’ catches on just in time for holidays
As Americans shop for the holidays, they will likely see a swarm of offers to get their gifts now but pay for them later in fixed monthly installments.
Fueled by several hot Silicon Valley startups as well as a push by the big credit card companies, “buy now, pay later” is now available for purchasing a $1,500 Peloton exercise bicycle as well as a $60 floral bouquet. Thousands of retailers, big and small, often have an option on their websites to pay for a purchase in installments at checkout. In the case of credit cards, customers are being allowed to create fixed payment plans days or even a few weeks after the purchase.
Americans seem to be champing at the bit to try this financial option, which has been common outside the U.S. for some time. One major credit card company says roughly six out of every 10 of its U.S. customers started a buy now, pay later program for the first time this year, and the Silicon Valley-backed companies who offer these plans are seeing tens of thousands of new customers every week.
“My shopping habits can be a bit impulsive, so I like the ability to break it up over several payments,” said Shahin Rafikian, 26, who lives in Los Angeles and has used several buy now, pay later services to purchase concert tickets, vinyl records and other items.
Rafikian said he would have likely purchased fewer large-ticket items if the cost had just gone onto a credit card that never got paid off.
Industry advocates say buy now, pay later programs are preferable to credit cards because there are fixed monthly payments and any interest is clearly stated upfront. Consumer advocates, typically skeptical about any new financial product, also have been relatively more positive about buy now, pay later since any plan would have a beginning and end date. Most of their worries concern any fees that might be associated with late payments.
“These products do encourage people to pay purchases off quicker and usually with less interest, but if people are using them to simply buy more than they should and getting over their heads, paying late fees, etc., are they really helping manage people’s expenses?” Lauren Saunders, associate director for the National Consumer Law Center, said.
Adobe Digital Economy Index, which analyzes direct consumer transactions online. said revenue on Cyber Monday from buy now, pay later plans rose 21% from a year ago.
Buy now, pay later is not a new product — services or products such as layaway, monthly payments on large purchases and even retail credit cards have existed for decades. What’s different is how it’s being offered, and who is offering the service.
Instead of telling a customer to apply for a store-branded credit card, which often can only be used at that one retailer, companies have added financing options provided through third-party companies such as Affirm, Afterpay or PayPal at their online checkout.
There are typically two different types of buy now, pay later services: the short-term payment plans that break a purchase up into four or six bi-weekly payments, and the longer-term installment loan-like products that Affirm offers.
PayPal co-founder Max Levchin started Affirm in 2012. The $32 billion company went public this year and effectively made Levchin the latest PayPal alumnus to become a billionaire.
With its buy now, pay later widget on many retailers’ websites, the company has seen extreme growth in the past few years. Affirm said in November that 8.7 million Americans are using its buy now, pay later services, more than double from a year ago. The company signed up 1.6 million new customers in the U.S. and Canada just in the last 90 days.
Tens of thousands of Americans became familiar with Affirm and the buy now, pay later option through its partnership with exercise equipment company Peloton.
One of them is Fallon Oeser a 26-year-old content strategist who lives in Ohio. She bought a Peloton bicycle in the summer last year, when the lockdown attracted many Americans to at-home exercise equipment.
“I’ve got student loans, so I knew I was taking on some responsibility here by taking out a loan. But it made the purchase more accessible and it worked for my budget,” she said.
Levchin, 46, said he started Affirm partly because when he was younger credit cards ruined his credit and buried him in interest and fees. He said he wanted to create a financially healthier product that would allow people to buy things on credit.
“We knew it was going to be gigantic a long time ago. It’s just at the kind of scale now where it’s basically impossible to ignore,” Levchin said in an interview in San Francisco.
The option to spread more routine purchases over time is going to be even more widespread in the coming months. At a café, Levchin paid for a $22 lunch by splitting the payments into four biweekly payments of $5.50. The company is testing a debit card that will allow customers to decide whether to pay any purchase in total or spread it over time.
The cost of doing pay-over-time can vary with Affirm and other buy now, pay later providers. A six-to-eight-week purchase may carry no interest at all like the $22 lunch. In some cases, the merchant has decided to pay the interest for the customer. But other consumers could pay as much as 30% annual interest on these large purchases with Affirm.
Afterpay does not charge interest on its purchases, but does charge borrowers a late fee if they miss a payment, up to 25% of the loan’s value. Affirm does not charge late fees on any purchases, but typically is willing to lend larger amounts and charge interest on longer-term loans .
The interest in buy now, pay later does not seem to be slowing.
A September study written by consulting firm Accenture, but commissioned by AfterPay, estimates that roughly 6% of all dollars spent online will be on buy now, pay later programs by year end. That figure is forecast to be 13% of all spending by 2025. That figure was basically zero a few years ago. Two major retailers — Wal-Mart and Target — have partnered with buy now, pay later companies like Affirm. Wal-Mart got rid of its layaway program in favor of buy now, pay later..
Credit card companies, seeing the potential impact of buy now, pay later on their business model, have tried to adapt. American Express, JPMorgan Chase and Citigroup all now offer similar payment plans for items purchased on their cards. A report by consulting firm McKinsey found that buy now pay, later startups diverted between $8 billion and $10 billion in revenue from traditional banks that would have likely financed these purchases a few years ago.
AmEx said 58% of its customers have set up a purchase plan for the first time this year, and more than $5 billion worth of purchases have been put on “Pay It, Plan It” agreements.
The rapid growth of buy now, pay later has also caught the attention of politicians and regulators. The House Financial Services Committee held a hearing on buy now, pay later programs earlier this month, where politicians asked for the Consumer Financial Protection Bureau to put more emphasis on monitoring the growth of this type of financing.
“These products raise important questions about the use of consumer data, the exploitation of spending patterns, the application of lending laws and the potential for unsustainable levels of consumer debt,” said Rep. Steven Lynch, D-Massachusetts.
The concern about overspending with these programs is real, Rafikian said.
“At first it was fun to have access to items typically out of my price range, but sometimes you get surprised and a little miserable that you have all these new payments due,” he said.
SAN FRANCISCO (AP)
One of the digital age’s most relentless discussions circulates around the connection of blockchain in trade finance. Blockchain has the power to reshape trade finance as it has the utmost capacity to decrease unnecessary frictions and inefficiencies taking over the trade finance value chain. This cryptographic ledger is a vital apparatus that would optimize any business process by simply downsizing redundancies and inefficiencies. As the core of international trade, trade finance is now utilizing blockchain, making the technology of its key pillars to improve productivity and push the financial industry forward.
Status Quo of Trade Finance
In terms of the current international trading conduct, ensuring the protection of any financial transaction is a must, and for that purpose, trade finance is extremely important. This is plausible through the deliverance of a credit card from financial institutions to guarantee such security where both the buyer and supplier have the opportunity to prosper through trade financing services.
At the moment, with the global economic crisis, the trade finance industry is being heavily scrutinized. Yet, with the help of blockchain technology – a technology that was once perceived as a concern – productivity will maintain an upward growth. In the financial scene, blockchain in trade finance has become the most innovative technology to modernize the industry by rectifying critical problems such as fraud, verifying the flow of trade assets, and guaranteeing the deliverance and takeovers of trade receivables.
The need to rectify the current state of the global finance ecosystem has never been more critical. For millions of small businesses that help shape and fuel the financial ecosystem, blockchain can help improve the ecosystem for all parties within this financial industry. Yet, in that aspect, it is of great importance to consider that with the global speed of modernization and digitalization, financial and commercial services are still falling behind compared to other sectors.
Some of the world’s most prominent multinational trade corporations have only recently accepted and began leveraging digital technologies, such as blockchain in trade finance, with the promise of vitalizing supply-chain efficiency and transparency. In its own way, this will lay the foundation of new digital networks to enable facilitated trade and finance.
Blockchain and Trade Finance
Blockchain technology has presented itself as one the most vital innovations that could potentially revitalize the trade finance industry. Not only does it offer immense capabilities to change the financial landscape of the industry by decreasing fraud, but it can initiate an unblurred and unbothered financial ecosystem through the deliverance of payments, transparently, and finally, the facilitation of trade receivables.
Nowadays, blockchain has the capacity to guarantee value transfer, as it holds a vital role in ensuring the alteration of business processes by simply redefining any value chain interaction. Integrating blockchain and trade finance has the power to reshape the trade finance sector solemnly.
But what will the future hold for this promising integration?
When we talk about trade finance, we are talking about the purchase process and the overall sale agreement between two parties, the importer and exporter. In this case, blockchain can heavily influence banks’ import by implementing smart contracts on the blockchain – computer-coded blockchain applications that work on pre-programmed terms and conditions that oversee transactions between two parties or establishments.
This, in its own way, will provide import banks with the ability to examine any purchase agreement, structure terms of credit, and eventually order an obligation to finalize lingering payments to export banks. Once the import bank reviews the submitted payment obligation – and receives approval – the smart contract on the blockchain will be initiated on the cryptographic ledger to highlight the needed terms and conditions to set the process in order.
What are the Benefits of Blockchain in the Trade Finance Value Chain?
In retrospect, blockchain adoption for trade finance will enhance the industry’s lending process and assist banks in reaching new markets and products, all while decreasing the threat of cross-border trade for both buyers and sellers as they work on expanding their business into new countries and regions. But the main question is, can blockchain be beneficially used in finance? The answer is yes, and here’s how.
Blockchain can revolutionize the modern financial world through real-time review, transparent factoring, disintermediate action, reduced counterparty risk, decentralized contract execution, proof of ownership, automated settlement, and reduced transaction fees.
Inside Telecom provides you with an extensive list of content covering all aspects of the tech industry. Keep an eye on our FinTech section to stay informed and up-to-date with our daily articles.
The world is entering the new age of digital finance, and financial technology is a pivotal element that will help shape the industry’s future. There is no denying that the COVID-19 pandemic played an integral role in altering the UAE’s financial services, going from unconnected traditional ones to becoming a critical and essential factor that revolutionized the current and future state of the financial industry. The Emirates has established fintech adoption and growth as its central national priority, shaping the path for digital financial services to become a profound innovation that would modernize the region’s financial status. Fintech in the UAE will prove to be a phenomenal sector reflecting the nation’s regional progress.
Is the Fintech Industry Growing in the UAE?
As the Middle East and North Africa’s (MENA) leading fintech market, the UAE aims to reach a record high of almost $2.5 billion in 2022 alone. A significant number can only be achievable through the Emirate’s support of its financial institution through the endorsement of the fintech industry, targeting payments, capital markets, and cybersecurity. So, why is the fintech industry growing?
As consumers direct their attention towards pumping their investments in more advanced financial products, such as end-to-end financial services, digital banking, wealth management, and payments, the fintech industry is proving that it might very well be the one the UAE’s leading industry. This growth results from the UAE’s implementation of well-thought-of financial strategies to deliver some of the world’s most prominent fintech establishments the needed reinforcement through offerings of economic and regulatory support, in parallel with the networking openings alongside a bundle of different services benefits.
Despite being relatively late to join the digital finance coalition, the UAE has proved to the world that it can be a crucial player in the fintech scene. In 2017 alone, the Central Bank of the UAE uncovered plans to release new licensing programs for digital payment services, only four years after the region became one of the largest markets adopting fintech innovations worldwide.
This has led the fintech industry to become one of the UAE’s fastest-growing industries in the GCC region, as the Emirate’s financial sector expands its horizons toward a sustainable and progressive future.
Fintech UAE Update
At the moment, the fintech industry in the UAE is a primal model in the evolution of the region’s financial sector as authorities intensify their focus on broadening their economic value within the area. In 2019, in the MENA region alone, fintech startups had magnified their capital to raise over $100 million in funding. They are expected to double, if not triple, by the end of 2023.
Now, Dubai has entered its next phase of empowering its financial sectors as it stirs global attraction towards its fintech sector. As one of the wealthiest of the seven emirates, Dubai taped talents as it embraced the upcoming phase of financial growth and directed itself to become a hub for startups by implementing a bundle of strategic maneuverings.
Through its support of the fintech startups, the city is encouraging an entrepreneurial community that would, in its own way, help drive the sector’s maturation. By implementing a flexible yet robust legislative system, strong and reliable financing tools, and a trustworthy regulatory environment, the city will be tooled with the needed requirements to steer the sector’s upsurge.
UAE Fintech Report
Just as the UAE’s fintech sector sustains its maturity with the hasty and extensive support of digital payments, mobile banking, blockchain and cryptocurrency, digital lending and credit, banking as a service (BaaS), and others, its financial landscape registered remarkable developments through these trends. The shift to digital approaches within the sector has up ticked a fundamental expansion. A progression much needed for the region to become a global hub for digital financial inclusion.
Following the COVID-19 pandemic, consumer behavior and payment preference shifted, with an estimate of two-thirds of UAE respondents revealing they now prefer the adoption of emerging digital payments. Methods they would have never thought of considering conducting their finances.
Digital banking, in particular, endured a rapid development, not just in the UAE, but in the MENA region as a whole, with almost 20 neobanks based in the region, operating to serve more than 15 million users. The UAE fintech report focuses on some of the most prominent digital banking platforms that were launched from within the region itself, such as Liv and E20 by Emirates NBD, Mashreq Neo by Mashreq Bank, and CBD by Dubai’s Commercial Bank.
New Lineage of Financial Sovereignty
The endless opportunities brought to the UAE through its accelerated adoption of digital payment solutions have placed it in a position of power in the region. Its well-developed and high-powered financial infrastructure attracted fintech startups to build a strong partnership with its private sector to support innovative digitally driven financial ventures.
The UAE managed to prove that through its implementation of these key initiatives, it can be positioned as a leading fintech and technology hub regionally and globally. The UAE Fintech Office, the National Innovation Strategy, and the National Artificial Intelligence Strategy 2031 will manifest into a new lineage of financial sovereignty.
Inside Telecom provides you with an extensive list of content covering all aspects of the tech industry. Keep an eye on our FinTech section to stay informed and up-to-date with our daily articles.
Advanced technologies such as machine learning, artificial intelligence (AI), cloud storage, and big data endorsed the financial industry’s digital transformation, allowing banks to heighten their market competition. Big data is one of the leading technologies that helped support and implement digital transformation for large-scale trading banks through storing and analyzing new and advantageous data to magnify their capabilities. So, how can big data benefit large-scale trading banks?
Big Data in Finance
At a time when the world intensifies its reliance on data-driven technologies, the financial sector is doing just that in response to the exaggerated and comprehensive digital changes. While various sectors generate a significant volume of data, the financial industry not only generates but relies on heavy amounts of data to manage its organizations and deliver leading decision-making analytics of the market.
The global financial market moves billions of dollars on a day-to-day basis at a speed that cannot be fathomed or tracked. In the financial sector, analysts hold the keys to the banking fortress by taking charge of precisely overseeing any generated data to construct the correct predictions, patterns, and strategies. Through the generation of massive volumes of data, big data holds a remarkable value in how it is being collected for analysis and its storage and interpretation—in return, it intensifies the reliance on cloud data solutions for large-scale trading banks.
Through big data, banks can interpret information related to their customers, money, and employers on a much larger scale and in accommodation to the rising wave of digital transformation. Large-scale trading banks are now forced to meet the standards of digitalization to manage this information, resulting in a long-overdue process of conversion demanding extensive behavioral and technological alterations. After all, big data not only transforms a singular business process, but it has the power to reshape the whole financial sector alongside its services.
How Does Big Data Benefit Finance?
In the era of data-driven technology, the financial sector is heavily involved in calculating and assessing extensive data proceedings. As the financial institutions calculate heavy volumes of data from financial transactions, experts and analysts consider big data the fuel that drives the services driving large-scale trading banks. Big data is deemed the pillar attribute energizing small and large-scale banks’ automation systems.
Digital transformation has further stimulated the association between human activity and big data banking, making big data an essential element in the development of the financial service industry. And chances are, it will most likely sustain that development to drive the sector’s future innovation.
Nowadays, big data can benefit large-scale trading banks in numerous areas, such as business process management, human resource (HR) management with the employees, research and development (R&D) management, analytics, business-to-business (B2B) processes, marketing and sales, establishment’s operational performance measurement, policy making, decision and performance, and others.
Big data banking can help large-scale trading banks analyze and develop the right strategy to provide better analytics-driven insights, which in return, will help enterprises use digitalized transactions data to increase performance. Big data’s association with financial markets, internet finance, financial service management, financial application, and so on can help empower four key financial industries such as financial markets, online marketplace, lending companies, and finally, large-scale trading banks.
By producing voluminous masses of data through daily transactions, user amount, data updating, accounts modification, and others, big data can help banks predict the right preference of consumers based on their previously conducted activity within the financial institution. It will magnify the accuracy level when forecasting, making the right decisions based on these predictions, which are developed on the vast mass of data gathered.
Inside Telecom provides you with an extensive list of content covering all aspects of the tech industry. Keep an eye on our FinTech section to stay informed and up-to-date with our daily articles.
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Ian Terblanche, Global Strategic Sales & Channel Director at Sigfox
