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‘Buy Now, Pay Later’ Platforms Marching on Fashion Magazine Territory

LONDON — Are “buy now, pay later” platforms becoming the new fashion and lifestyle glossies?

As magazines seek ways to monetize content online and offline, embark on e-commerce ventures and fight for readers’ eyeballs, buy now, pay later payment platforms such as Klarna, Afterpay, its U.K. sister company Clearpay and QuadPay have been rapidly working their way into the minds — and wallets — of Millennial and Gen Z shoppers, as well as digitally minded brands and retailers.

These sites offer slick imagery, campaigns and marketing content, hire celebrity ambassadors and actively engage with consumers, giving them the opportunity to curate searches and wish lists, discover new brands, track the trends and spread their payments, interest-free, across weeks or months, or to try items before they buy.

Like Instagram with its Explore Guides, these platforms are taking cues from glossy magazines. Retail websites like Net-a-porter, Matchesfashion, Farfetch and Alibaba seal consumers into a world they never have to leave, offering curated product imagery, video streaming, shopping and a variety of payment options in one place.

The payment platforms have morphed into shoppable online platforms, with an editorial bent, a point of view, global trend reports and product offers that stretch beyond fashion into home, tech, beauty and entertaining.

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Klarna’s shoppers are introduced to brands through multiple channels and mediums, including targeted emails for brand launches. Courtesy Image.

In the U.K., Klarna has taken on Tan France of Netflix’s “Queer Eye” as its “inclusivity ambassador,” while the sites also work actively with influencers. Clearpay, meanwhile, publishes a biannual fashion and trend report, based on what its customers are buying, and dedicated surveys of consumer beauty trends, or Black Friday/Cyber Monday sales.

In doing so, they’re building communities and becoming trusted sources of information with a demographic that will make up half the workforce within five or 10 years — and half the disposable income. These platforms are also riding the crest of the direct-to-consumer and e-commerce waves, which have only gained momentum during the COVID-19 pandemic.

Unlike glossy magazines, with their attempts at e-commerce — see Condé Nast’s ill-fated Style.com — these buy now, pay later platforms began with a bottom-up, rather than a top-down, approach, putting the customer first by catering to their lifestyle demands.

“From a consumer point of view, these platforms are not only a budgeting tool, but a trusted source of information for Gen Z and Millennials to find digital-first brands, much like glossy magazines and guides like Lonely Planet were in the past,” said Mo White, a London-based business consultant with a background in online retail, digital marketing and brand building.

“For the brands, these platforms are also a new way of advertising. They tell the brands, ‘We are a discovery tool. Use us for customer acquisition, and your sales go up,’” White added.

How many magazines can say that?

The new platforms’ business models favor shoppers in their 20s, 30s and 40s who are debt-averse, eschew credit cards in favor of debit ones, and who often use these platforms like subscription services, or budgeting tools, with the staggered, interest-free payments that dovetail with the bimonthly, or monthly, arrival of their paychecks.

The platforms are also connecting with an independent-minded audience that won’t take direction from fashion editors telling them how to dress, or what the “hot” labels are. Instead, these customers are looking at their own friends and family, influencers and pop culture to inform their buying decisions.

Klarna transaction volume grew by 350 percent in the 12 months to Sept. 2020. Courtesy Image.

They’re also hot financial property: Afterpay’s market cap is 45.19 billion Australian dollars, or $34.94 billion, while Klarna was valued at $11 billion last year, ahead of a possible initial public offering — and are evolving into powerful industry players.

The platforms are undertaking major sponsorships, supporting young designers across the big fashion cities, leveraging their gold mines of data and forecasting trends for consumers and trade alike.

Earlier this week Clearpay was announced as the principal partner of London Fashion Week in a significant two-year deal that will see it underwrite all of the British Fashion Council’s talent initiatives, support local designers and offer consumers greater access to brands and industry players. Clearpay has also supported the BFC in the past, contributing 25,000 pounds to the BFC Foundation Fund for the COVID crisis last year.

In October, Afterpay replaced Mercedes-Benz as the sponsor of Australian Fashion Week, and the multiyear deal will see the showcase rebranded as Afterpay Australian Fashion Week, or AAFW. The fact that a Melbourne-based buy now, pay later upstart, founded just seven years ago, could replace Mercedes — which had been associated with the event for 20 years — is telling.

A screenshot from the Afterpay homepage. Courtesy Photo

Afterpay and its competitors are serving a generation of consumers who don’t see expensive cars — or credit cards — as status symbols. While their parents might have aspired to driving a luxury sports car or whipping out a gold or platinum credit card to pay at a Michelin-starred restaurant or hotel, these customers are different. They prefer to move with the likes of Uber, order takeaway from their mobile phones, holiday with Airbnb, and rack up as little debt as possible.

Last year, Afterpay also partnered with a Common Thread​, the philanthropic effort involving Vogue and the Council of Fashion Designers of America, and ​Baby2Baby​, which provides children living in poverty with diapers and clothing. Its U.K. arm, Clearpay, was one corporate donor to the BFC Foundation Fashion Fund, alongside Amazon, the Coach Foundation and Browns.

The Swedish fintech platform and bank Klarna has been a sponsor of the U.K. men’s wear and streetwear trade show Jacket Required and London Fashion Week.

Klarna has also been the most aggressive on the editorial and marketing front, naming the popular Netflix personality Tan France, whose family is Muslim Pakistani from Yorkshire, England, as its inclusivity ambassador. In October, Klarna worked with France on a diversity campaign asking consumers to “reconsider their views on fashion.”

It created a series of curated wish lists celebrating diversity within its app. France shared his own style choices, which were fully shoppable for Klarna’s app users. While Klarna may be popular with its core customer base of Gen Z and Millennials, the company said its fastest-growing consumer base is Gen X, who are 40 to 55 years old.

In the next months these platforms will be getting even more aggressive, using the data they mine on an hourly basis to fuel their content and commerce strategies.

Other payment providers such as PayPal and Affirm will likely follow suit, creating designer and brand marketplaces for people to shop.

Meanwhile, other digital service providers are upping their editorial game: WeTransfer, the data transfer site, has created a polished online showcase and newsletter called WePresent, where it posts original artwork, films, illustrations, literature, music and photography. All those indie fashion magazines with cultural and artistic pretensions should take note.

Nick Molnar, cofounder of Afterpay. Patrick MacLeod/WWD

“We look at Clearpay as an ecosystem — a very rich ecosystem — that involves us, the retailers, the brands and the consumer,” said Carl-Olav Scheible, chief executive officer of Clearpay U.K., in an interview.

“We’re only at the beginning of communicating that, and trying to be good at making the world more accessible, especially at a time where we’re sitting at home. How can we bring the world to you? It’s a big challenge and a big aspiration.”

Scheible added that Clearpay wants to offer a sweep of retailers, from large ones like Asos and Reiss to small ones and even local businesses that might not be on most customers’ radar.

Since landing in the U.K. a little more than 18 months ago, Clearpay has signed on publicly listed mega companies Marks & Spencer, Asos, The Hut Group and its beauty platform, Lookfantastic. Clearpay’s smaller brands include Rixo, Jo Malone London and Hunter.

Like the big publishing groups, these platforms are competing with one another for consumer eyeballs, and advertising dollars, euros and pounds. In some regions, they’re even competing with the likes of Google when it comes to referrals to fashion and beauty brands.

Bringing The Hut Group on board was a major win for Clearpay in the U.K. and Afterpay in the U.S.

THG argued that if the four Clearpay payments are made on time, “they do not charge interest, which often leads to an increase in average order value. They focus on building and strengthening merchant relationships, and drive incremental traffic directly to the retailer.”

Some buy now, pay later platforms have fallen foul of regulators in certain markets.

The U.K.’s advertising watchdog has, in the past, accused some payment providers of encouraging consumers to load up on debt, while the Financial Conduct Authority published a ruling on Feb. 2 that buy now, pay later products, which are exempt from regulation, “should be brought within the regulatory perimeter as a matter of urgency.”

The Financial Conduct Authority noted the use of buy now, pay later products nearly quadrupled in 2020, and is now at 2.7 billion pounds in the U.K., with five million people using the products since the beginning of the coronavirus pandemic.

“The emergence and expansion of unregulated buy now, pay later products gives consumers a significant alternative to more expensive credit, but this also comes with significant potential for consumer harm. Regulation would protect people who use buy now, pay later products and make the market sustainable,” the Financial Conduct Authority said.

Asked about the impending regulation in the U.K. Nick Molnar, cofounder of Clearpay/Afterpay, said in an interview that “from Day One in Australia and the U.K., our motivation has been to be pro-regulation, and to make sure that the right, proportionate frameworks are created that align with consumers’ best interests.”

Molnar noted that in Australia, the credit regulator was granted access to regulate the industry — “which is something we proactively supported.”

Late last year the Australian regulator ruled that buy now, pay later companies, which usually don’t credit-check their customers due to the relatively small amounts on loan, will have to pay closer attention to the type of people they target, and keep a watchful eye on those who are regularly missing payments.

A screenshot from the Clearpay website. Courtesy Photo

Globally, the Afterpay/Clearpay juggernaut has more than 64,000 retailers, brands and merchants selling fashion, beauty and lifestyle accessories.

“You can also shop cross-border,” said Scheible. “A U.K. consumer can shop on an Australian, New Zealand, Canadian or U.S. website if they’re looking for hard-to-find products or want to try something new.” He added Clearpay saw a 460 percent increase in brand referrals to global merchants last year, compared with 2019.

There is more to come: Scheible said Clearpay’s shop window will continue to evolve. The platform plans to increase search capacity, make the site easier to navigate, improve its ability to surface the right products, and make better shopping suggestions based on what happens to be trending.

“We’ve also talked about having a more active consumer and retailer blog. We’ve only been in the U.K. for a year and a half. I think you will see continued evolution in that direction,” said Scheible.

From the brands’ and retailers’ point of view, buy now, pay later platforms have become like glossies on steroids. They get paid up-front, and give the payment platforms a cut of sales. In return, they benefit from new traffic streams, higher average order, or AOV, values — and measurable results.

Afterpay cofounder Nick Molnar; IMG executive director fashion events group, Asia-Pacific region Natalie Xenita, and models Gemma Ward, Akiima and Anja Brown, photographed at Bondi Icebergs. Lee Oliveira

Brands large and small benefit from these platform partnerships in different ways.

“We have a highly engaged, high-frequency, well-defined demographic. Marks & Spencer is one of the largest sellers of denim in the U.K. and they are trying to attract a younger consumer. They wanted to partner with us not for the payment piece, but because they can access our one-million-plus active consumers in the U.K. who are primarily female, Millennial and Gen-Z aged,” said Scheible.

British multibrand fashion retailer Wolf & Badger, which is tiny compared to M&S, said it has been testing Klarna for two months and said the platform’s users have a 12 percent higher AOV than the average Wolf & Badger customer.

Skin care and cosmetics brand Iconic London, which derives 50 percent of its overall revenue from 18- to 34-year-olds, has been with Klarna for a year, and said 10 percent of all its sales transactions now take place through the platform.

Selma Terzic, Iconic London’s CEO, said the AOV of Klarna users’ baskets is 12 percent higher than that of customers using other payment services. In November and December the Klarna AOV figure shot up to 18 percent.

Klarna has a multifaceted appeal for younger customers, she argued. “People want to shop now — immediacy is an important factor — as is try before you buy.” Terzic said that, given the platform’s option to pay after 30 days, customer returns are very low.

Designer Deborah Lyons said these buy now, pay later platforms are a boon for small brands like hers because they allow young consumers to take a risk, and buy from a brand they may not be familiar with.

She said for a new customer, a coat that costs 600 pounds is a far less intimidating purchase when it’s broken into three, interest-free Klarna installments over 60 days, or when the full payment can be delayed for 30 days.

Lyons added that the opportunity to sell with providers like Klarna has also allowed the brand to build its direct-to-consumer proposition, and rely less on wholesale.

Buy now, pay later company QuadPay acquired Urge Holdings to bring intelligence and visual search to its installment payments platform. Courtesy photo

Brands have other reasons for working with the buy now, pay later payment platforms.

Christopher Suarez, the cofounder of Ssōne, a sustainably minded clothing brand that sells on Matchesfashion.com and has a stand-alone store in London’s Marylebone, said these platforms are a direct route to a younger, and aspirational, customer base who share the values of the brand.

They are also a way for a new generation of consumers to make investment purchases, and better plan how they use their resources.

“We wanted to be an inclusive, not exclusive, brand and give people the opportunity to buy something with longer-term value,” said Suarez, whose company has partnered with Klarna. “People want to shop more meaningfully and rely less on disposable fashion, and this is a real opportunity for them to be more sustainable.”

Screenshots from the Klarna email newsletter. Courtesy Photo

British fine jewelry brand Lark & Berry, which sells designs made with cultured, non-mined diamonds, said it partnered with the payment provider for similar reasons.

“Since 2019, Klarna has handled more than $35 billion in online sales, they’re a leading, trusted retail financial planning institution, and a perfect match,” said founder Laura Chavez. She said Klarna’s payment options — three installments for purchases up to 1,000 pounds — will allow more fine jewelry fans “to make the switch to cultured diamonds and stones.”

Rixo, known for its brightly printed and patchwork dresses, said it joined Clearpay in order to help its customers shop in challenging times.

“We felt it would aid conversion, and allow customers from a younger demographic to buy into the brand, without the full up-front cost of a luxury item. It also allows our customers to spread the cost over a longer period during a time of potential financial uncertainty,” said Rixo’s head of e-commerce Camilla du Boulay.

In the past, how much would these smaller brands have had to stump up to advertise in a fashion glossy? And how would they have measured the return on their investment?

While magazines can tout circulation figures, demographics and online viewer figures, the big publishing groups still cannot quantify the returns for brands that advertise with them.

And while they may have better, more granular, data to show to digital advertisers, they still cannot get close to giving brands the sort of numbers that a payment or services platform can potentially provide.

Indeed, payment platforms typically have extensive data they they share with merchants, sometimes before those merchants even sign onto the site.

The buy now, pay later platforms are also coming to the fore at a time when brands’ and retailers’ traditional advertising budgets are giving way to marketing ones. Today, fashion names large and small prefer to invest in their own newsletters, websites and social media rather than in traditional digital or print publications.

“The brands’ mentality now is, ‘I need to be where my consumer is, rather than where the magazines tell me my consumer is,’” said one sales and marketing executive who has worked across a variety of U.S. and European publishing groups for decades.

“COVID-19 only accelerated these changes and forced the brands to ask themselves, ‘How can we do things differently?’ No brand can afford to be blasé anymore about how and where they spend their money,” the executive said.

With COVID-19 still tearing through so many parts of the globe, and lockdowns and furloughs persisting, consumers’ budgets are stretched, and the demand for new and creative ways to shop, and pay, has become more of a necessity than a frill.

While installment payments have enjoyed successes in Europe, Australia and the Far East, it has taken time for them to catch on in the U.S.

According to the How We Shop Report by PayPal and Pymnts, 57 percent of all U.S. consumers say that the availability of digital payments options would impact their choices of where to shop. And 48 percent of consumers who prefer buy now, pay later payments reported that they would not shop with retailers that don’t offer it.

The platforms are becoming customer magnets. U.S.-based QuadPay said within three weeks of partnering with a merchant, it typically ends up transacting around 20 percent of that company’s sales.

From an editorial point of view, these platforms are destined to become even slicker operations.

QuadPay is one ambitious player in the space and, like the others, has been burnishing its editorial credentials, as well as its service offer.

In an interview, QuadPay co-CEO Brad Lindenberg described the site as a budgeting tool, and said the next steps were clear, although they have nothing to do with budgets.

In addition to gearing up for a rollout in Canada and the U.K. later this year, Lindenberg said his teams are focused on the customer experience, on the QuadPay website and on the app.

“What we want to become is a destination of discovery because, at the end of the day, we’re a payment tool. We wouldn’t exist if the great brands out there didn’t create great products, and people didn’t shop them,” he said.

In addition to offering buy now, pay later services with its partner brands, Quadpay allows customers to pay any retailer they like, whether that’s Chanel, Louis Vuitton or Walmart, in four installments, with zero interest.

In November, the well-funded Quadpay acquired the Sydney-based visual search tech start-up Urge Holdings, which developed and launched The Urge, a text-based fashion search engine, and Shnap, a new visual search app.

A screenshot from the Quadpay homepage. Courtesy Photo

Quadpay customers will soon be able to shop apparel using photos, as well as compare prices and search by brand or product, even across retailers.

Later this year, Quadpay also plans to add machine learning and AI tools that will allow its systems to learn what people similar to one another are shopping for.

Lindenberg pointed to the discover tab on Instagram, “and how curated that feed has become. If we can use machine learning and algorithms to do the same thing for fashion, and the discovery of apparel and products, then we can build highly personalized experiences.”

He believes China is leading the way on the personalization front, with Alibaba wooing shoppers with curated video streaming.

Lindenberg argued that the “human element,” the curation of product and the focus on trends are as important as the algorithms and the data.

“Just like the old magazines had fashion spreads, in our app we have a section that highlights jackets, sneakers and work-from-home products, like sweet dreams kits, face masks or pajamas,” he said. “It’s very important to how we position the brand, and the business.”

He said the future will be about more granular personalization, and service.

“You’ll be scrolling through and seeing products relevant to what you’ve bought in the past and at the price points that you shopped before, or products relevant to other people your age and your gender. And then we can put in a bit of curation, and video. I think that’s where it’s going to go in a year or two,” he said.

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