When Jameil Joseph goes to check out his online shopping cart, he’ll often click on the option to buy now and pay later.
Most of his friends do it, too, he said.
“I use them whenever they’re available,” said Joseph. “It’s always better to have extra money.”
Increasingly, online retailers are partnering with financial service providers to allow customers to make purchases — while only paying a fraction of the cost upfront.
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According to analysis conducted by SIA Partners, the buy now, pay later (BNPL) share of retail e-commerce and point-of-sale transactions in the U.S. was less than two per cent in 2021, but is expected to double to four per cent by 2025.
Apple is the latest company to enter the market, announcing on Monday that it will offer financing options for purchases made via Apple Pay. The new service, Apple Pay Later, will be available in the U.S. in the fall. (Apple has not disclosed when the service can be expected to be available in Canada.)
BNPL — offered by providers like Afterpay, Klarna, PayBright and Sezzle — is essentially like a point-of-sale loan, where a customer purchases an item, then pays for it through regular instalments over the course of a few weeks or months.
But such services are also catching the attention of financial regulators around the world, as the industry currently has few regulations.
These schemes aren’t exactly new — car dealerships and furniture stores have commonly offered no-interest financing options for years. But BNPL loans are becoming more mainstream and better integrated with online shopping platforms, giving consumers the chance to finance nearly any kind of purchase with the click of a button.
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PayBright, for example, which offers BNPL services in Canada, partners with more than 5,700 retailers — including The Bay, Steven Madden and Apple — to offer six-week interest-free instalment plans. According to their website, they’ve approved more than $1.76 billion in consumer credit since their inception in 2009.
These buy-now-pay-later schemes have found particular success with young consumers, allowing them to access these loans with very few barriers.
At the same time, the rising popularity of these services is raising concern about the impact they have on consumer debt.
Joseph, a 30-year-old who lives in Toronto, says he has a good handle on his finances. At the same time, he concedes that these services can encourage people to spend more.
“Sometimes, you know you want to buy something; instead of waiting, you can buy now,” he said.
Young people attracted to easy-to-get loans
It’s a message that’s playing out on social media platforms like TikTok, where influencers are partnering with BNPL companies to market these services with skits, songs and dances.
“You get a little bit of instant gratification, because you may see a luxury brand purse, or a luxury brand phone, or something that may be just a little bit beyond what you can afford on a day-to-day basis,” said Abhishek Sinha, a partner at the consulting firm EY Canada.
“But you still are able to actually acquire that good or service, and pay for it over a period of time.”
The growing popularity of BNPL prompted the Financial Consumer Agency of Canada to conduct a pilot study last year on the use of these services. While the findings were not statistically significant due to the small number of people surveyed, the study found that of those surveyed, young consumers between the ages of 18 and 34 use online BNPL services the most.
The top reasons why consumers turned to these services were budgeting, inability to pay the full price of a good or service, and to avoid interest and fees.
Julia Drybrough, from Winnipeg, says she likes using BNPL services because they make purchases more “palatable.”
“I buy items that i consider ‘treat myself purchases,'” said the 24-year-old, who works in the service industry. “Things like makeup, shoes and clothes that I couldn’t justify due to the reduced hours I was working because of the pandemic.”
Buy now, pay later (BNPL) providers, like PayBright, offer customers the opportunity to purchase an item immediately, but pay for it through regular instalments over the course of a few weeks or months. (Giordano Ciampini/The Canadian Press)
Safwan Zaheer, an associate partner at SIA Partners, a management consulting firm, said BNPL is more appealing than credit cards for some consumers.
“Buy now, pay later is a better form of credit as compared to a credit card, which has common hidden fees and compounding interest and penalties,” Zaheer said.
But personal finance expert Mark Ting doesn’t recommend consumers turn to BNPL services, saying they can encourage young consumers with little financial literacy to overspend.
“You can fall into the trap of just buying a whole bunch of stuff, overspending, thinking that these low monthly costs are reasonable,” said Ting. “And then all of a sudden, you’ve got a whole bunch of them.”
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BNPL companies will often run a soft credit check on a customer before issuing a loan. However, a source of concern for critics is that, in contrast to credit cards, the issuance of BNPL loans is not reported to credit bureaus.
“You could have multiple loans all over the place and they’ll never talk to each other,” said Ting.
In an email, Equifax said they are currently in discussions with BNPL providers in Canada about the potential of reporting accounts to them.
A win for retailers
Although business models differ from one company to another, most BNPL companies make their money by charging retailers for purchases made through their services.
According to Swedish fintech company Klarna, a major global player in the BNPL space, consumers spend 45 per cent more when they use buy now, pay later. And about the same percentage of people will make a purchase using BNPL that they otherwise would have delayed, making these services a win for retailers.
“BNPL increases orders and leads to fewer dumped carts,” Klarna says on its website.
That essentially means retailers are turning browsers into customers, said Sinha.
“They can offer their goods and services to a demographic which can’t really afford it right now. So it opens up a bigger market for them than otherwise,” Sinha said.
Growing industry, with challenges
Apple’s entry into the BNPL space is part of the company’s fintech strategy of tying its products to financial services, said Zaheer. With increased adoption of BNPL services, Apple sees an opportunity to increase its volume of sales through Apple Pay.
The company said it would provide the option to make purchases in four equal instalments over six weeks, with no interest or fees charged.
As more players enter the BNPL game, there are also concerns about profitability.
Klarna recently laid off 10 per cent of its employees and saw its valuation drop by a third, according to Bloomberg. At the same time, Klarna has expanded to Canada, with a new office in Toronto meant to be its North American headquarters.
What’s playing out with Klarna is emblematic of challenges in the industry, said Zaheer, because of how much capital is needed to operate BNPL, along with no interest being charged.
“It is a broader concern in the industry that buy now, pay later firms … are broadly non-profitable,” Zaheer said.
A Sezzle logo is shown in a person’s online shopping cart, one of the many buy now, pay later service providers in the market. (Jesse Johnston/The Canadian Press)
BNPL providers are also facing higher interest rates, raising their costs and lowering margins.
Another uncertainty facing the industry is regulation. The U.S. Consumer Financial Protection Bureau (CFPB) launched an inquiry last December into BNPL, ordering five major companies to release information about their practices in a bid to learn more about their operations.
“The CFPB is concerned about accumulating debt, regulatory arbitrage and data harvesting in a consumer-credit market already quickly changing with technology,” it said in a news release.
Looking into the future, Sinha said regulation in Canada is likely on the way as these services become more popular.
And given consumers’ propensity to incur debt, Sinha said he also expects BNPL services to continue to grow.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
