“Anything the banks are thinking about is not on our horizon,” Hatton says in an interview in Afterpay’s offices in Surry Hills, Sydney, last week, before CBA unveiled its buy now, pay later plans.
“We are not building another ‘me too’. There are some functions, like capturing a deposit and making payments, that are the same. But the experiences we build around that will be like nothing a bank, or a neobank, would do.”
Hatton providedThe Australian Financial Reviewwith a first-look at the Afterpay Money app since the planwas announced in its half-year results in February.The hand drawn mock-ups of customer on-boarding journeys she puts on the table suggest the initial target market will be young females - the same demographic that flocked to Afterpay to provide inspiration on where to shop.
“The front page of your Money app will be around the things that are relevant to you,” she says. “The user experience is more like a shopping experience than it is a banking experience. It doesn’t look like, here are your accounts and here are your balances. It’s more around things like, what are the things in my wish-list at the moment that I am saving for.”
CBA said on Wednesday it will offer its customers a digital “BNPL” card that will appear in a smartphone wallet to create a ‘pay in four’ repayment plan. Hatton explains that Afterpay is planning to closely integrate its separate banking app with its core buy now, pay later service and unlike banks, it will not be designed around products and transactions, but rather around customer experiences. Initially these will be targeted at its core, young female user base.
“You build experiences around her by looking at what is happening in her everyday that has stopped her feeling empowered by her money, and comparing that to what has helped her feel empowered by BNPL,” Hatton says. “We will create an experience where she is taking back control of her money and feels as empowered and joyful about savings as she does about spending.”
“We want to curate her experience, not just create it.”
How version 1 of Afterpay Money will look to users. Afterpay FY20 results
“Why should banks be nervous?” We have a deeply engaged consumer that trusts us that we can find offers for to help them navigate life more effectively in a way that resonates with them. It is colourful and beautiful.”
If banks figure Afterpay is only considering playing around the edges of banking, they would be wrong: Hatton reveals it is preparing to enter the space head on, and the message to its customers will be: “You can throw away your existing cards - they will no longer be necessary.”
Deal finder
With Afterpay investors interested in its strategic thinking on creating new revenue streams, Hatton says while the first version of the app will be focused on money management, over time Afterpay could become a loan broker and earn income from referring customers to trusted partners, such as Westpac, for loan products.
“You can see it going through to mortgages and home lending one day down the track,” she says. “We don’t want Millennials and Gen Z to give up on owning a home and there is all that potential along the way but first we will navigate BNPL and consumers savings and transacting with us every day.”
She also says Afterpay is thinking about how it can play a role saving customers money outside banking, including by showing them better deals on utilities.
“We will give hints and tips around how to manage money better and we can help you save money on different experiences - it might be utilities or telco. We will be able to have insight on key spend levels, at not only an individual level but a group level. That is down the track for us.”
With Westpac doing the heavy lifting for Afterpay in terms of regulation - the bank will hold Afterpay deposits on its balance sheet and satisfy all APRA regulation on behalf of the fintech - Hatton says Afterpay will be freed up to focus on innovation.
She’s confident Afterpay starts from a good position given its clean slate in terms of technology, in contrast to banks’ complex legacy systems. At NAB’s UBank, which she ran, new ideas were hard to translate into action because UBank ran on NAB’s clunky Oracle legacy technology, she says.
CBA has more flexible core banking systems than its competitors and has been investing heavily in new functionality for its own banking app, including the Bill Sense feature that allows customers to predict upcoming spending.
Afterpay is planning similar functionality. It is also considering a product similar to CBA’s new AdvancePay, which provides early access to salary to be paid into the account. CBA will charge a fee for the service and a 14.9 per cent interest rate if the amount drawn early is not repaid.
But Hatton says this pricing structure is anathema to Afterpay. “We will not be emulating types of products which are interest bearing,” she says. “That is not who we are.”
With slides presented by CBA at its half-year results in February showing the bank losing market share in the key 18-34-year-old demographic, one CBA has dominated for decades, some analysts are questioning whether CBA’s brand resonates as strongly with younger generations as it once did. Hatton confirms Afterpay will be playing the trust card to entice its existing customer base into banking.
“The core thing she wants, with all the trust we have, is ‘How do I find what is right for me? I will trust you to find that’,” she explains. “We take that really seriously. It has to be part of an experience that makes it easy and engaging and a bit of fun.”
“If budgeting is at the heart of this it will give the customer a clear view of exactly what their position is, so they can make decisions everyday about what is the next best thing to do with their money.”
Afterpay has been working closely with Basiq, in which Westpac’s Reinventure Group and NAB Ventures hold stakes in, to help it categorise transaction data to be fed into the new app.
While Afterpay is not immediately considering accreditation under the open banking regime, “what will shift [under open banking] this is when smart product people work out the types of experiences you can build for people when you have those data sets,” Hatton says.
“That is where there is a lot of work to be done in the wider industry - and that is where we spend all our time right now.”
Responding to CommBank buy now, pay later - and a similar move by PayPal to also offer pay in four at a lower price than what Afterpay charges the merchant - some analysts say the new competition misses the key reason Afterpay has attracted so many young customers so quickly: it is not simply about providing a payments option but it has created a retailing platform, driven by powerful network effects, bringing customers and retailers together to drive incremental sales and higher basket sizes for the retailers.
“The Afterpay fee incorporates more than just a transaction, it incorporates data benefits, cross-marketing opportunities and its role as a customer acquisition channel… the decision to use a CBA card is made at point of sale whilst the decision to use Afterpay is made at the beginning of the shopping journey,” Evans&Partners executive director Matthew Wilson said in a note.
