Having been a banker for a long time, I welcome the regulator into the BNPL space. Of course, regulation should never stifle innovation and should give space to create innovative solutions and experiences.
Australia’s buy now, pay later (BNPL) market appears a little overcrowded of late. The likes of Klarna, Latitude Pay and Afterpay have made the pay-in-four model an expected feature of Australians’ shopping experience. Yet there’s little to distinguish this BNPL retail experience.
Openpay, among the oldest of Australia’s BNPL bunch, has found ways to carve out its niche. Longer, larger and customised is core to its lending philosophy, offering bigger, longer loan plans, tailored around the needs of customers embarking on life-changing purchasing decisions – from medical treatments and veterinary care to home renovations. Its unique B2B Software-as-a-Service offering, adopted by retail giant Woolworths, has also created a surprising, though welcome, new revenue stream.
Ex-CBA executive and payments industry guru, Michael Eidel, saw limitless potential in the Openpay model, bringing his expertise from the big four world to build out one of the BNPL sector’s most versatile and fast-expanding outfits.
We speak Eidel, now three years at the helm of Openpay, on his shift to the dynamic world of a BNPL fintech, how the company is readying for an inevitable tide of regulation, and whether buy now, pay later could sound the death knell for the credit card.
FST Media: You had a long and distinguished career within the established financial services sector, most recently as EGM at Aussie banking and financial innovation powerhouse CBA. So what lured you to the burgeoning BNPL sector?
Eidel: From a personal perspective, while I had a really great time at CBA, turning 50 some years ago, I really wanted to pursue a third career (having previously been a management consultant with McKinsey in my early years). I wanted to embrace the opportunity to combine my professional passions: customers and the customer experience, as well as in solving business problems and creating new business opportunities supported by emerging technologies.
At CBA, I had the chance to do wonderful, world-first initiatives, including with distributed ledger technology and IoT sensors. We did a lot in payments innovation – for instance, ‘Albert’ the eftpos terminal. I was also involved in standing up real-time payments infrastructure within CBA as a director within the New Payments Platform.
I saw great opportunities moving from this big cruise ship in CBA to a small, versatile speedboat.
Openpay found me; I met with the founders and saw it as an excellent opportunity to fulfil my dream of leading a company, creating a distinct culture with great values, and delivering fantastic customer outcomes – both for consumers and merchants. Openpay’s wonderful ecosystem provides a great opportunity to create a network between supply and demand for a smart payment and lending solution.
FST Media: Openpay, a smaller, more dynamic unit, no doubt offers a very different innovation ecosystem to a big four. How would you say it most differs from the big bank experience?
Eidel: I made the metaphor of the cruise ship and the speedboat just before. CBA is 110 years old; in that, there’s a lot of positive legacy and history. Openpay is an eight-year-old company; in the UK, we’ve been operating for just two years, and we’ve just launched in the US. It’s certainly more greenfield than red tape, if you like, and that’s reflected in the different business cultures.
In my experience over the years – and, of course, all banks are different – the banking sector is more about defending value created over a long period of time than in creating new value.
For us at Openpay, there isn’t anything left behind – no big history, no legacy – which means we can really focus on looking ahead, in disrupting and creating new value, and being radically useful and innovative in what we do. This is what leads to an unbiased focus on customer outcomes. It’s what I love about being at the helm of Openpay: the constant determination to get better every day and to learn, fail, learn again, pivot, improve and win.
It’s a fantastic journey and very, very different from being part of a bigger organisation where you have a lot of people who influence your decision. Whilst you may have a very senior position at a big bank, you’re still not really owning what you’re supposed to own.
That’s why these large organisations struggle with defining clear accountabilities – there are just so many people who talk into your remit.
At Openpay, the accountability is absolutely clear. I may be the CEO, but I have a fantastic leadership team, they own their space, and we’re all accountable. There’s no grey zone. This really drives the pace and the determination to create exciting customer outcomes and experiences.
FST Media: Australia has become a bit of a launchpad for buy now, pay later businesses. What unique conditions do you feel have made this so?
Eidel: It’s a fantastic market to innovate and find an excited audience to take on the new things that come from smart technology. I noticed this immediately when I came to Australia after working at some big European banks with a global footprint. Even from a large organisations’ perspective, there is something to Australia that makes us different.
The BNPL sector was really pioneered or invented, if you like, in Australia. If I take the Openpay story: in 2013, the Meydan Group, the founding family business of Openpay – which also has other business interests in retail fashion and even software – had customers coming in and requesting to lay-by their purchases. It was never a great customer experience, having to physically come in again and again to pay for a product, and certainly not logistically for the merchant having to keep the product in-store. Meydan thought: ‘Why couldn’t we invert the whole process? The customer pays an initial 20 per cent, we organise an instalment plan, they get their shirt, enjoy it, and then come back for something new.’ From there, they assembled a few software developers and retail people and created this Openpay business model.
More broadly, Australia is a great breeding ground for these great ideas. Even foreign companies appreciate the openness of investors in Australia, both institutional and retail, to grow their business here. A good example is Sezzle, a US-focused BNPL provider, which opted to list on the ASX a few years ago, rather than the Nasdaq or New York Stock Exchange.
FST Media: Australians have a bit of a love-hate relationship with their credit cards, and younger generations are increasingly looking for alternatives, no doubt opening the door to these tech-based loan solutions emerging in the retail space.
Besides the obvious objections to high-interest cards, is there something unique in the Australian consumer market that drives this craving for new and innovative financial products?
Eidel: Having lived in several different places around the globe, there’s certainly something unique to Australian culture. Australians aren’t just willing to accept what has always been.
You point to a good example in the payments and lending space, which is credit cards. Australians have accumulated more than $50 billion in accumulated debt on credit cards, a considerable portion of which will never be paid back. It’s easy to get into this credit trap, and customers end up paying horrendous interest rates.
Young people in particular, but also consumers my age, like honest, transparent, and ‘responsible’ products – to use a term from the regulators.
Along with this, they also enjoy a great customer experience: one that is playful, easy to use, and fun. Australia, culturally, very much adheres to these combinations.
Looking at credit card usage, which I did a lot as a banker, there’s been a strong decrease in card utilisation in Australia, and the world is certainly following this trend. Openpay’s BNPL offering – and indeed our interpretation of BNPL, which is ‘buy now, pay smarter‘ – focuses exactly on those areas, those considered investments, that people would typically use their credit cards for: higher-value purchases for important lifestyle investments, like servicing their car, dental treatments, veterinary bills, or home improvements – all verticals that we’re currently involved in. To account for these bigger purchases, rather than the retail-based, pay-in-four plans, Openpay offers consumers customised plans between two to 24 months, and up to $20,000.
FST Media: So, could BNPL be a credit card killer?
Eidel: That’s perhaps too big of a statement to make. What I would say, though, having offered our product to many merchants and their customers, it’s a much better alternative to credit cards.
Ultimately, it’s on the customer to decide what’s best for them. Providing choice, a responsible alternative to credit cards, is absolutely the core of our buy now, pay smarter value proposition. Could it kill credit cards? Maybe, maybe not. But for sure, it’s a better solution to the needs of customers for big-ticket investments.
FST Media: And with diminishing take-up rates for credit cards, especially among younger cohorts, it does appear these consumers are searching for something different.
Eidel: They are. And you saw this even before BNPL was invented and gained traction in Australia. The credit card isn’t a great product. BNPL can be the alternative that the market has been screaming for.
This actually strongly influenced our decision to move to the US. There is a strong need, particularly for our unique BNPL offering – that ‘longer, larger and customised’ product – in the US, the largest consumer market in the world, and to provide a service that can overcome the traps of credit cards.
FST Media: Which really touches on your unique selling proposition. Your verticals and target market appear quite different to BNPLs like Afterpay and Klarna.
Eidel: To summarise it in one slogan: our plans are longer, larger, and customised. We might see the longer and larger aspect from other players, but our point here is to be a budgeting tool for smart people. And particularly offering our services to people and their families for important investments or purchasing decisions.
What also differentiates us is that we’re not a one-size-fits-all, pay-in-four service like Afterpay; they do a great job in that space already.
We work very intensely with the merchant to get the product right and the structure of the product for their needs. If a dentist needs a six-month plan for dental treatment, we can offer that six-month payment plan; if it’s a 15-month root canal treatment cycle, then we can adjust that to a 15-month payment plan. We have the flexibility to get it right for the unique business needs of the merchant as well as the patient and their needs.
FST Media: Partnerships with the big four banks have become somewhat of inevitability in the local BNPL sector: Klarna with CBA, Afterpay with Westpac. Are there any similar partnership aspirations for Openpay?
Eidel: We’ve partnered a lot from the outset. We have partnerships for wholesale distribution, recently becoming a global partner for one of the largest payment processors, FIS/Worldpay – a fantastic partnership that gives us access, through a native integration, to their payment processing engines and platforms, with up to 1.2 million merchants across the globe, many which being verticals we also want to focus on and want to own.
We also partner with software platforms like ezyVet, which offers veterinary practice management software, making us accessible within thousands of veterinary clinics and practices. We also have similar integrations with dental services, and e-commerce platforms as well – Shopify, for example. That’s part of our strategy to scale our business.
You’re right, Openpay hasn’t yet partnered with a bank. But we’re open to all manner of partnerships going forward. It’s a very important part of our strategy – a bit of a jigsaw piece in a bigger puzzle, if you like.
FST Media: The BNPL sector sits in a bit of a regulatory grey zone. Firstly, do you think formal regulation is coming from ASIC, and if, or when, that regulation does arrive, what would you want it to look like?
Eidel: The sector has done well to organise itself under the leadership of the Australian Financial Institution Association, coming up with a code of practice and a code of behaviour to ensure we operate in the interests of customers. We, as BNPL providers, have committed to high standards when it comes to financial stress and in helping people in critical situations. I see strong self-regulation in Australia – and this also comes from the context of my background in Europe.
In Australia, there are two really remarkable things. First of all, the regulators do not believe they need to immediately regulate everything new. On the other side, there’s also quite a responsible approach from providers of a new service to come to clear conclusions about the standards of what a financial product should be. Is this necessarily enough? Perhaps not.
Having been a banker for a long time, I welcome the regulator into the BNPL space. Of course, regulation should never stifle innovation and should give space to create innovative solutions and experiences.
What the market really doesn’t like, however, is uncertainty from regulators. From the outset, our approach is to be responsible in what we do; and this is very close to responsible lending as regulated under the National Credit Code. We consider ourselves closest to how the regulations would expect and want our business to operate – we do a lot of affordability credit checks, we’re heavy users of credit bureaus (which is also the feedback I get from them here and in the UK), and we provide the customer with the choice when they repay over time. We also have a very strong financial hardship program and provisions to help consumers avoid getting in financial distress.
In Australia, we operate with a credit licence. We can switch our product onto this if there are regulations in the market. From our perspective, we want to be a responsible, regulated, and licensed credit product. If this also helps the consumer feel safe about who provides them with credit to the highest standards of what that should be, from their perspective also, I welcome it.
Adopting these regulations, after all, will be a small step for us, and probably a much bigger one for our competitors. And it could well be a competitive advantage for us.
FST Media: You recently partnered with retail giant Woolworths to deliver an Openpay for Business SaaS solution. Could you give us a little insight into the platform and why it’s so unique?
Eidel: From the outset, the Openpay for Business platform has been built for the specific needs of large enterprise retailers like Woolworths – which itself manages the accounts of thousands of businesses that purchase wholesale groceries across their different brands.
We’ve built this software-as-a-service on our platform, digitising the whole B2B partnership process – from identifying new businesses that want to apply for partnership agreement at preferential terms with Woolies to invoicing terms. We identify them, we set them up, and we enable the invoice and payment terms to purchase with Woolworths, in-store and online.
We also have Woolworths reconcile all incoming payments of these payment plans over time, linking it back to the purchase wherever it happened. This is very much replicating what we do in the business-to-consumer market with our buy now, pay smarter product, but as a SaaS into large enterprises for business and trader customers.
We’re building out beautiful technology, very seamlessly integrated into Woolworths’ business processes that create this business customer experience. The software is very new, very slick, and very easy to integrate for them.
Through it, we’ve now onboarded thousands of business customers who now only use our experience to purchase through Woolworth Wholesale.
We see transaction volumes coming through, we now have revenue, which we get from a usage-based fee model for the SaaS – that’s the only revenue stream we get through the platform. We don’t fund these invoice terms; Woolies does that themselves.
When I joined Openpay, the idea of this SaaS offering was perhaps even more appealing than growing out BNPL products. We’ve since built it, launched it, and now have a very strong pipeline to take to the broader market. It’s a very exciting and an important innovation for us and additional business as we move forward. Seeing the great value and feedback, we certainly have ambitions to roll it out globally.
FST Media: Experience is everything today, arguably more so than product. What, to you, is the ideal customer journey in the BNPL space and, indeed, the experience you want to take customers through with Openpay?
Eidel: A customer experience needs to be absolutely intuitive, sleek, and modern.
People don’t want to click through 10 different sites and steps; it needs to be a bit of a ‘one-click-delivers-the-whole-solution’ experience.
This was a key philosophy in our original and particularly in our newly launched e-commerce 2.0 platform.
We work intensely and constantly to improve the customer journey to make it a very easy experience. On the other side, it is important to recognise that we offer financial products; we want the customer to pause for a second and think about what they’re doing. It’s a lending product, and ultimately as a customer, they’ll need to pay it back. It’s really combining the ease of use and ease of integration (with merchants), with the need to educate our customers. That combination is what drives us in this business. ◼
