Weekly Updates in Payments
By: Tiffany Dong
Tags: Payments, Payments Technology, Financial Services, Fintech, Banking

June 21 — July 4

Afterpay in Fashion

Afterpay, an Australian “Buy Now Pay Later” fintech founded in 2015 by Nick Molnar and Anthony Eisen, has recently entered the luxury fashion scene with its debut in Afterpay Australian Fashion Week (AAFW) and later this September with New York Fashion Week (NYFW). What this means for the retail industries is that consumers have more access to fashion brands, and Afterpay is able to help consumes finance for such purchases. In particular, the partnership with NYFW generates more economic value than any other fashion event around the world — last year generating ~$900 million for the city of New York via new jobs and tax revenue. Given the COVID-19 pandemic, the fashion industry faced many setbacks as consumers did not have disposable income to spend on fashion and luxury goods.

Leslie Russo, President of IMG’s Fashion Events and Properties, said: “Our industry has faced countless setbacks during the pandemic, but our collective resilience is unparalleled. With our new partners at Afterpay, we are proudly committing to not only reignite the commerce and creativity showcased at America’s most critical fashion industry event, but revitalize New York’s fashion and retail sectors at large.”

The partnership with Afterpay helps set a new precedent in fashion that offers inclusion, accessibility, and sustainability to both retailers and consumers. Afterpay allows for access to certain brands and clothes that many consumers could not afford fully at point-of-sale, which benefits both the consumer and retailer as the retailer is able to generate more sales and revenue from an increase in consumers — essentially, Afterpay is helping to ensure that top American designers continue to lead the world in creativity, innovation, and accessible fashion.

2. Amazon’s potential break up with Chase

Chase and Amazon first partnered together back in 2002, but according to a Bloomberg report, Amazon is looking at bids to take over the Amazon Prime Rewards Visa Signature Card and its portfolio. A possible reason for this break up is that this card portfolio holds up more than $15B in loans and users are spending more than $50B per year — making it hard for Chase to turn a profit given the perks with the card. Over the years, banks have been loading up their cards with tons of perks (points, rewards, and cash back), making it hard for the banks to profit — especially when the profits are split with Visa and Mastercard. In particular, as a Prime member, the Amazon Prime Rewards Card earns 5% cash back on Amazon and Whole Foods purchases; cardholders get 2% cash back at restaurants, gas stations, and drugstores and 1% back on everything else.

American Express and Synchrony Financial are some of the companies who are bidding to take up Amazon’s card portfolio. For Chase, the partnership might end as the portfolio might not be as profitable as they envisioned.

It’s interesting to see an exit from Chase in this partnership considering the volume Amazon brings in; however, this might show how relying on legacy payment options (credit/debit cards) might not be as profitable for banks. With the emergence of non-card payment products like “BNPL” from companies like Afterpay and Klarna, the traditional banks might start to experiment in-house both to compete with fintechs, but also to find other channels of profit.

3. Western Union vs. Fintechs

Western Union, an American financial services company primarily operating in the cross-border payments space for 145 years, has fallen target to many fintechs including Wise, Remitly, and WorldRemit. Western Union seems up to the challenge as they have been investing in its own digital operations through partnerships with and acquisitions of fintechs and also creating their own digital products and applications.

COVID-19 rapidly accelerated digitalization in all verticals, especially the financial services vertical. Last year, Western Union had an increase of 38% in overall digital money transfers and saw an increase of 30% in annual active customers to 8.6 million.

Western Union has been actively ensuring that they do not get eaten up by the fintechs. Looking at their mobile app, users can track a money transfer, look at exchange rates, send money around the world, pay bills, and everything is encrypted and protected — adding in a secure and seamless experience for the user, which is what most fintechs aim to do. Also, Western Union has been migrating most of their applications to the AWS Cloud Platform — overall mining 33 data warehouses and storing 20 perabytes of data in the cloud. The company is starting to use artificial intelligence and machine learning for their front office operations and recently launched a telephone money transfer product where the customer is able to talk to a 24/7 virtual assistant.

It seems WU has been taking an active role in the digitalization of their products, services, and company. I’m hoping that the competition between fintechs and legacy financial services companies like Western Union help facilitate for better services for consumers and in turn transform banking and financial services into a fully digitalized and seamless experience, away from its archaic forms of operations.

4. Bank’s role in accelerating the digital banking transformation

When we look at banks and fintechs, most assume that fintechs are disrupting traditional banking business; however, when traditional banks and fintechs work together, it benefits the entire ecosystem of banking, technology, and software. There are a couple of reasons why banks should collaborate and work with fintechs.

First, the switch towards digitalization catalyzed by the COVID-19 pandemic gave sense for online and mobile banking with 71% of Americans regularly using online banking and 43% regularly using mobile banking. With millions of Americans unable to enter a physical bank branch, banks have been creating more optionality to bank via computer, tablet, or phone. With the help of fintechs, banks would be able to roll out products that consumers can use quicker and integrate a seamless experience for their customers. Second, expansion for both parties are at play. The tech companies can use banks’ help with expanding into new markets while benefiting from the regulatory status of banks, meanwhile banks are able to benefit from the technology companies’ expertise in creating, testing, and deploying products quickly without having to spend on creating products in-house at the bank. The collaboration between banks and fintech companies are essential for how the future of the financial services sector will look like and how we pay our bills, get paid, invest, save money, and buy goods/services. In order to create a seamless experience for clients and consumers, banks need to stop playing “catch-up” with the quick-paced fintechs and either step it up and create disruptive products themselves to compete or choose to partner with the disruptors in banking.

Hope everyone had a great 4th of July weekend! :)