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As competition intensifies among “buy-now-pay-later” services for retail purchases, Australian company Afterpay Ltd. is stepping into the fray in Canada.

The Melbourne-based financial technology firm announced its Canadian launch on Wednesday as part of a global expansion plan. Afterpay partners with retailers to offer customers the option to pay for purchases in installments. It is part of a growing industry of companies offering installments – the kind of financing consumers are used to seeing for cars or furniture – on a smaller-ticket purchases, including clothing and accessories, makeup and electronics.

Particularly online, shoppers may have noticed an added option at checkout for instalment plans offered by third-party providers, including Toronto-based companies PayBright and Flexiti Financial. Customers go through an approval process, and instalment plans can extend over a period of weeks or months.

Online shopping has grown significantly during the COVID-19 pandemic, hitting $3.9-billion in Canada in May. As stores have reopened, e-commerce has softened slightly, to $3.2-billion in June, but that still represents growth of 70.6 per cent compared with the same month last year, according to Statistics Canada.

Afterpay is initially launching its service only for e-commerce in Canada, though it offers in-store options in other markets.

“There has been a distinct shift from offline to online,” Afterpay co-founder and chief executive for North America, Nick Molnar, said in an interview.

Buy-now-pay-later services are pitched to shoppers as an alternative to carrying credit-card debt. The companies sometimes make money by charging interest to customers. In the case of zero-per-cent offers such as Afterpay’s, the cost is usually off-loaded to the retailer through a transaction fee, and customers are charged fees only if they are late on payments.

For retailers, the appeal is that more flexible payment options may persuade customers not to abandon shopping carts, and to possibly spend more than they might otherwise.

American Eagle Outfitters Inc., for example, launched Afterpay earlier this year in the United States. “Early results … are very favourable and carried a notably higher average order value,” chief operating officer Michael Rempell said in a statement.

Last month, the Better Business Bureau encouraged consumers to think carefully before signing up for instalment payment services. It added that these types of services tend to appeal especially to younger shoppers, and interest rates can range from zero per cent to 30 per cent.

“Ask yourself if paying the total price means spending more than you can actually afford, and make your decision accordingly,” the BBB statement said. It also noted that using instalment services could affect shoppers’ credit scores if they miss payments.

“Late fees, as a portion of our total revenue, is very small. … We make the bulk of our money from retailers,” Mr. Molnar said, adding that Afterpay does not allow shoppers who have missed payments to continue making purchases with the company until they are caught up.

Globally, the competition in this market has been heating up, particularly between large international players Afterpay and Swedish provider Klarna Bank AB. Last year, Klarna struck a partnership with PayBright to serve its retail clients in Canada, such as popular makeup retailer Sephora.

In Canada, the majority of retailers do not have buy-now-pay-later options, Mr. Molnar said, which Afterpay sees as an opportunity for growth. So far, the company has partnerships in Canada with retailers Roots Ltd., Huda Beauty and American Eagle, and is working on others.

The launch will be the first foray into buy-now-pay-later services for Roots, which is aiming to attract new e-commerce customers in Canada and globally.

“E-commerce has always been a significant part of our consumer shopping experience, and that is increasingly the case given the growing importance of the online retail channel,” Roots CEO Meghan Roach said in a statement.

Earlier this week, Afterpay announced a €50-million ($77.9-million) deal to buy Spanish company Pagantis SAU in a bid to expand into Europe, where Klarna has a large presence. Afterpay already operates in the U.S., Australia and New Zealand, and under the Clearpay brand in Britain.

The company says it has nearly 10 million active users globally, 73 per cent of them under the age of 40. Outside of Canada, Afterpay partners with retailers such as ASOS, Marks & Spencer, Urban Outfitters and Fenty Beauty, the makeup line founded by pop star Rihanna.

“We are certainly investing in growth at this point in time,” Mr. Molnar said.

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