Payment alternatives to buying on credit
In a consumerist society, which is driven by instant gratification and consumption, credit is king and debtors rue their repayments. In this environment, two start-ups are offering alternatives to the over-used credit card.
The latest TransUnion Financial Hardship Report shows 85% consumers remain concerned about their inability to pay bills and loans, with 29% expecting to run into a shortfall within a month and over a quarter (28%) expecting not to be able to meet their financial obligations for longer than three months.
Respondents’ average monthly shortfalls in repayments has also increased, from R7 354 in October to R7 425 last month and their biggest weaknesses are the inability to service credit products – 39% unable to pay personal loans, 37% unable to pay retail or clothing store accounts, and 29% unable to pay either utilities or internet bills. Over a quarter of respondents (27%) were concerned about their ability to repay their credit cards.
Experian’s statistics indicate there are currently 20.3 million credit-active consumers in South Africa, owing more than R1.5 trillion in outstanding debt, while 17.9% of loans are at least four months in arrears. The Covid-19 pandemic, it said in July, resulted in defaults reaching their highest level in five years, with R20.73 billion defaulted for the first time over the period from January to April 2020.
With consumers under increasing pressure, two start-up financial services providers are offering payment solutions that avoid debt.
PayJustNow.com lets you pay for purchases interest-free over three months. You pay a third of the purchase price up front and the balance over two equal instalments, with zero interest or costs. “Soft” credit checks are required, in line with the National Credit Act. Approval is instant and products are shipped as soon as the transaction is completed.
PayJustNow.com chief executive Craig Newborn says it’s a win for retailers too, because they receive instant payment, while PayJustNow.com takes on the risk of the customer defaulting.
He says consumers can use the method as a “cashflow tool”.
The concept, which started in Australia, has taken off globally. Launched in South Africa in August last year, PayJustNow has already seen a tenfold increase year-on-year. Few customers acquired during this period have defaulted.
“We didn’t expect that – what we discovered is that because we don’t charge interest or fees, there’s almost a social contract. The consumer is part of the transaction, they aren’t the transaction.
“During Covid there was a significant peak. Then things went a bit quiet until September, when we saw a 14-fold increase on last year’s numbers.”
A second start-up is offering a high-tech version of the traditional lay-by.
Traditional lay-by systems are a headache for merchants, retailers and customers, says LayUp founder and chief executive, Andrew Katzwinkel. They have high administration costs and non-completion rates. Customers also have to go through a cumbersome “analogue” application process and make payments in-store every month. For the lower-income market, which is traditionally the biggest consumer of lay-bys, it is also expensive because of additional transport costs.
“That’s why there were so many delinquencies and high non-completion rates. Through LayUp, customers can be active in store or online and make payments at their leisure. It’s super simple. The customer is fully aware of how far they are along, so there’s transparency in the process. Once the item is paid off, it’s either shipped or collected in store. For merchants, we take a massive amount of admin away from them, filing out the order and checking up on the customers.”
Customers can pay via card, online or in store at any of the affiliated retailers.
LayUp, he says, aims to improve finalisation rates up to 60% for businesses, while opening access to the market. Through automating collections, refunds, cancellations and settlements, overall administrative costs are vastly reduced.
And it’s no longer low-income earners that they are able to target, with a world of untapped potential.
“With 30 million consumers currently locked out of the economy through the inability to access credit, by circumventing the need for a credit check, LayUp also offers businesses the potential to tap into South Africa’s underdeveloped low-income market. This represents potentially billions in transactions, opening access to new revenue streams for businesses.”
LayUp has already processed over R10-million in transactions and is being utilised by companies such as online ticketing company Howler, luxury lodge group Tintswalo Lodges, technology retailer Epic Deals and golf travel specialist store Flook.