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Aussie buy now, pay later companies are killing credit cards for younger generations – and it shows the changing nature of retail

Jack Derwin
  • The rapid rise of Australian buy now, pay later (BNPL) companies has helped erode the use of credit cards for younger generations.
  • Exclusive research provided to Business Insider Australia shows that one BNPL company, Afterpay, alone commands a larger market share than the entire credit card sector, 17% versus 12%.
  • Throw in the myriad of other BNPL companies operating in Australia, and the fast-growing sector looks to present a "huge opportunity" for retailers, according to commerce researcher Retail Power.
  • Visit Business Insider Australia’s homepage for more stories.

Video killed the radio star, and credit cards might just be headed the same way.

Younger generations are turning away from credit, opting instead for flashier buy now pay, later (BNPL) companies like Afterpay and Zip, which allow consumers to get an instant loan at the point of sale, according to research by commerce group Power Retail. Provided exclusively to Business Insider Australia, the study shows almost one in five members of Generation Z -- those aged 25 or below -- used Afterpay on their last purchase, whereas just 12% used a credit card.

While Afterpay currently boasts the largest market share, if you were to include the glut of BNPL competitors like Zip, Humm, Splitit, Openpay, Payright, Sezzle, and newly-arrived Klarna, their lead over the credit card industry would extend much further.

"Clearly the next generation of shoppers have behaviours wildly different from the last – and it’s changing at a pace no marketers can keep up with," Power Retail managing director Grant Arnott said. "Next-generation shoppers have serious implications for retailers – knowing how to navigate the next-gen jungle will define how retailers are able to grow profitability in the near future."

Generation Z isn't alone in the trend. The next generation up, millennials aged up to 35, make up a third of Australian BNPL users and credit card use across age groups has declined 3%, according to Roy Morgan. While offering alternative services, consumer credit remains regulated while BNPL services are not.

It will be interesting to see how credit card company giants respond. Visa has already announced it will launch a split payment service this year in Australia, which allows existing customers to pay back purchases in instalments. Corporate soothsayer Scott Galloway has predicted BNPL companies will simply be overrun by the card companies they were looking to disrupt, while Zip co-founder Peter Gray claims they pose no threat.

Given an estimated $2.8 trillion of wealth is due to be transferred from baby boomers to younger generations over the next two decades in Australia, according to research group McCrindle, these demographics clearly pose lucrative markets to struggling retailers desperate for a win.

Targeting them via BNPL providers remains "a huge opportunity", according to Arnott. Three in four Gen Z members, for example, said they'd be more likely to use a retailer after using a BNPL service with them. Meanwhile, one in four had more than 6 six retail apps on their phone, and the majority shop while in bed or on social media.

Their proclivity for discounts doesn't look like abating either. Nearly 90% said their preference for online shopping meant that they're looking for bargains, with just under a half of purchases being discounted or on sale.

With Australians continuing to tighten the purse strings after the Christmas sales period, retailers will need the younger generation and their hard-earned dollars more than ever.

READ MORE:

Australia's buy now pay later companies are pledging to do better by their customers. Here's what they're promising. The CEO of Swedish fintech giant Klarna says his company is 'much more' than a buy now, pay later platform – as it launches in Australia US buy-now-pay-later app Sezzle moves into Afterpay's territory in Australia – but says it's not here to fight