The Layaway Is Back for Macy’s in New Deal With Fintech Firm Klarna

The Layaway Is Back for Macy’s in New Deal With Fintech Firm Klarna. A continuing digital evolution in search of younger shoppers. Photo of a Macy.

Through Klarna, Macy’s will begin offering its customers the option to pay for products with four interest-free installments, aiding both customer conversion and acquisition.

“With a strong focus on digital agility and innovation, Macy’s continually seeks strategic partnerships that enable us to provide our customers with the best possible shopping experience,” Matt Baer, Macy’s chief digital officer, said in a statement. “We’re excited to embark on a long-term relationship with Klarna that will help us reach wider audiences looking for seamless alternative payment solutions.”

By tapping the fast-growing fintech company, the apparel retailer will also have access to a younger demographic of shoppers.

“Usually alternative payments drive small, but tangible incrementality,” Sucharita Kodali, a principal analyst who covers retail at research firm Forrester, said. She added that any service that reduces friction during the shopping experience and encourages people to buy is a positive for the retailer.

When a shopper is eyeing a more expensive product that they don’t have the money upfront to purchase, but could afford it over time, offering an installment purchase removes that consideration. It is particularly key when selling luxury products, Iris Chan, a partner at digital marketing agency Digital Luxury Group, said.

Macy’s CEO Jeff Gennette has said publicly he sees market share in the luxury sector up for grabs given bankruptcies in the space.

While offering the alternative payment plan won’t be enough to turn Macy’s around, any incremental dollars “would be a win in a world where apparel sales have declined,” Kodali said. She went on to note that 1% of U.S. consumers used Klarna in the last three months, citing Forrester’s data.

Alternative payments such as buy now, pay later also don’t limit access to the credit worthy, according to Chan, and appeals to shoppers with a more digital-forward mindset, giving a retailer access to new audiences.

Paying for products in installments, a form of layaway, has been around for decades. Like rent-to-own, these alternative payment programs have proven popular during economic downturns.

Buy now, pay later began to gain traction following the Credit Card Act of 2009, passed in the aftermath of the financial crisis, which prohibited credit card companies from marketing on college campuses or allowing anyone under the age of 21 to apply for a credit card without either proof of earned income or a co-signer, according to David Sykes, president of Klarna’s U.S. operations. That resulted in younger customers such as Gen Z and millennials relying more on alternative forms of payment.

The pandemic has further accelerated growth with retailer adoption up 158% year over year. Klarna recently singed on Nautica and Aeropostale, both owned by Authentic Brands, as well as Lady Gaga’s beauty brand Haus Laboratories, Beautycounter, Missguided, Gymshark and Finish Line, among others. Gross merchandise volume during the first half of 2020 increased 44% to $22 billion, and 1 million new U.S. users joined over the summer, bringing total users to about 9 million, the company said.

As part of the partnership, Macy’s has also become an investor in Klarna, which has a valuation of $10.6 billion, according to the announcement. Additionally, the consumer-facing fintech company will provide the department store chain with a wealth of data to more clearly see the shopping behavior of its customers, Sykes said.

Personal-finance firm Credit Karma to launch checking account in US

(Reuters) – Personal-finance company Credit Karma said on Tuesday it would launch a checking account to U.S. members this year, making it the …

By Anna Irrera

2 Min Read

(Reuters) – Personal-finance company Credit Karma said on Tuesday it would launch a checking account to U.S. members this year, making it the latest fintech to join the crowded digital banking market.

Credit Karma Money Checking will initially be available only to those members who hold a savings account with Credit Karma, the San Francisco-based company said.

Opening a checking account will require no minimum balance or deposit requirements, it added.

The service will be available more widely in early 2021 with offerings being added throughout the year.

Credit Karma, which has 100 million members in the United States, Canada and the UK, is best known for letting customers access their credit scores and some other personal finance tools for free. It also offers third-party credit cards and loans to customers, tailored to their credit history.

Several fintechs have been expanding the types of financial services they offer and moving beyond their initial area of focus. Many are now seeking to attract deposits, often through enticing rates or low fees.

Credit Karma hopes its product will stand out among competitors because of how it connects to the company’s other offerings, Kenneth Lin, Credit Karma chief executive officer and founder, said in an interview.

“The differentiation is going to be the connection to the credit and a holistic view of your financial life,” Lin said. “It helps consumers build credit and pay off the debt and save for their future.”

Credit Karma will be offering its checking account through MVB Bank Inc, a member of Federal Deposit Insurance Corp, a U.S. bank regulator. Lin said the company does not have plans to apply for a banking charter.

“We are not looking to be a bank,” Lin said.

Reporting by Anna Irrera in London and C Nivedita in Bengaluru; Editing by Maju Samuel

The death of cash

Those life lessons paired with the convenience of financial technology are all fine and good with Rogan. Albeit there is one drawback, especially on …

Opinion

Like many of her peers at Stonewall Collegiate, Rogan Stoecklin likes to go to “Tim’s” for a snack after class.

And she often doesn’t bring her wallet.

She doesn’t have to.

It’s not that her friends are incredibly generous, buying her a snack or drink.

Rather, the 14-year-old, who figure skates, excels at math and hopes to be a veterinarian one day, uses her mobile phone to pay.

“I rely almost solely on my phone and my card,” Stoecklin says, adding she still gets some cash from babysitting. But since getting a part-time job with a paycheque deposited into her savings account, she’d rather tap to pay.

“So I rarely have cash on me anymore.”

Cash used to be king — so the saying goes. But the crown is slipping off the king’s head more and more, by the year. Fewer Canadians use cash to pay, preferring debit and even more so credit cards — be it the actual plastic card or through an app on a mobile device.

What’s more, a recent Ipsos survey — part of its annual Canada Payments study — shows cash use steeply declined during the pandemic with credit card use rising significantly.

“We know that in the last five years we’ve seen credit cards increasing steadily,” says Heidi Wilson, vice-president of marketing and strategy at Ipsos and in charge of the study.

Prior to 2020, credit card use rose from 44 per cent to 52 per cent of consumer purchases from 2014 to 2019. So far this year, however, credit card use has increased to 59 per cent — with most of that growth occurring since March.

In contrast, cash use fell from 23 per cent in 2014 to 19 per cent last year.

Today, however, cash is now used only 11 per cent of the time. (Debit card use, by the way, has held steady from last year at 19 per cent.)

Wilson says cash isn’t dead just yet, but its prognosis isn’t great.

And its declining use is changing how we spend — in particular how much we spend.

First, it’s important to note the pandemic reduced debt-loads among Canadians. Many people have stayed home more, and in turn saved money by not paying for lunches out, going to movies and other leisure activities. In turn, many consumers seem to have been using those savings to pay down debt.

MIKAELA MACKENZIE / WINNIPEG FREE PRESS</p>
<p>Sarah Stoecklin-Falk and her 14-year-old daughter, Rogan Stoecklin, often use tap (either on their phones or with cards) to pay for goods.</p>

MIKAELA MACKENZIE / WINNIPEG FREE PRESS

Sarah Stoecklin-Falk and her 14-year-old daughter, Rogan Stoecklin, often use tap (either on their phones or with cards) to pay for goods.

Recent Statistics Canada data show Canadians now owe $1.58 for every dollar of household income, down from the high of about $1.75 prior to COVID-19.

Yet it’s likely deferrals of mortgage, auto, credit card and other debt payments have also helped. The Canada Emergency Response Benefit has likely played its part too, particularly for lower income earners carrying credit card debt.

That’s possibly one reason why debt counselling agencies, like Community Financial Counselling Services in Winnipeg, have yet to see a recent influx of indebted individuals with unmanageable debt.

“Our clients have been telling us that they have been thankful for the COVID support programs which have allowed them to reduce debt and manage their finances while many were facing reduced income,” says John Silver, CFCS’s executive director.

But its counsellors expect “calls will increase as CERB and all of the credit card, mortgage and rent default supports are cut at the end of September.”

Wilson adds the survey supports this premise. Some indebted consumers managed to pay off their credit card balances that had been building prior to the pandemic. Six per cent of the 28 per cent surveyed, who had indicated carrying a card balance in March, had paid off that debt by June.

But the remaining consumers with rolling credit card debt — 22 per cent of all surveyed — actually saw their debt rise from about $3,000 to nearly $5,000 on average.

“That’s a frightening stat because it means those most at risk and in need of money are turning to a really high interest loan with credit cards,” Wilson says.

Additionally, it’s easier to overspend using plastic, research has consistently shown, as revealed in a 2015 study published in the Journal of Consumer Research. Using cards, and even more so having the card on file when shopping online with click-and-buy, decrease the psychological pain we feel if we had used cash. In other words, paying with cash hurts more than paying with plastic because credit delays the pain. We don’t see the bill until a few days or weeks later. As such, it’s much easier to overspend with credit.

These findings are not lost on policy-makers, like the Bank of Canada, which tracks Canadians’ methods of payments. It recently published an in-house discussion paper that showed the “rush to plastic” wasn’t as dramatic as expected, the central bank stated in an email to the Free Press.

In its own survey, the Bank of Canada found 36 per cent of Canadians still used cash in a transaction the week prior to being polled while 52 per cent used debit, 62 per cent used credit cards and 38 per cent used e-transfer.

“About two-thirds of Canadians say they did not change their cash use during the pandemic, while 35 per cent reported a decrease,” the email further stated.

That said, the central bank is concerned about rising debt in Canada and anything that plays a role in that trend — including growing credit use.

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Many Canadians are monitoring their spending too, aware the tally grows more easily when tapping at the till. That includes Rogan’s mother Sarah Stoecklin-Falk, the “accountant” of the household.

“I personally like tap. It is fast and convenient,” she says. “The downside… is you don’t see how all the purchases add up.”

Yet Stoecklin-Falk still considers the potential to overspend an opportunity to teach the kids about budgeting. And given her children often use their phones to pay, she also has them paying their mobile bills — another “stepping stone” to financial independence.

Those life lessons paired with the convenience of financial technology are all fine and good with Rogan.

Albeit there is one drawback, especially on those jaunts to Tim Hortons.

“I often don’t take my wallet out when I go out with family, but my phone is always on me,” Rogan says. “So if we’re going to Tim’s, I often have to pay.”

Nerdwallet acquires UK’s Know Your Money as it expands outside the US

Investors include IVP, RRE Ventures, iGlobe Partners and Silicon Valley Bank.

Nerdwallet, which provides resources for people looking for a new credit card, loan, insurance or other financial product or just financial advice, is making a move today to spearhead a move into international markets. The startup is acquiring Know Your Money, a Norwich-based startup that provides a similar range of comparison and information tools geared at people who live in the U.K.

Financial terms of the deal are not being disclosed, Nerdwallet said. Know Your Money will become Nerdwallet’s first operation outside of the U.S. and will spearhead the company’s efforts for further international expansion under international general manager Megan Tedford.

The deal underscores the quiet growth of the San Francisco-based startup, which now has 160 million users. It last raised money in 2015 — $100 million ($69 million in equity, and the rest in a credit note) — at a valuation of about $520 million. It hasn’t updated that number since, but has been profitable and has no plans to raise more funding for the moment. Investors include IVP, RRE Ventures, iGlobe Partners and Silicon Valley Bank.

Nerdwallet has also expanded significantly since that time, and currently makes more than $150 million annually in revenues. For some more context, Nerdwallet competes directly with companies like Credit Karma (which has 100 million users and was acquired by Intuit earlier this year for $7.1 billion), Credit Sesame (which last year estimated that it’s valued at around $1 billion), along with a number of other marketplaces that both provide advice and financial content, as well as cost comparison services to weigh up the relative costs of different offers for various financial products.

Nerdwallet describes Know Your Money as the U.K.’s largest comparison site serving businesses. It had some 5 million consumers and 1.2 million businesses using its products last year, which include looking for and opening bank accounts, getting loans and arranging mortgages, and getting insurance.

“We’re looking forward to joining forces with NerdWallet and building on the fantastic work our team has done helping consumers learn about, evaluate and compare financial products,” said Jason Tassie, who co-founded Know Your Money with John Ellmore, in a statement. “Working with NerdWallet will help us accelerate our existing growth plans, expanding our content library, tools and guides to offer users more support in financial decision making. Know Your Money and NerdWallet are perfectly aligned in their goal of empowering people to make better, more-informed financial decisions.”

Tedford said that the whole process of finding and negotiating with Know Your Money started ahead of the pandemic but was essentially carried out over Zoom with travel all but completely halted in February of this year — a strange circumstance, but one everyone has learned to live with.

The pandemic may not have spurred this deal but has underscored where the opportunity might be for both companies, as consumers are increasingly carrying out more of their financial lives online but also hoping to be more fiscally in control as economies totter and fall into recession.

“The pandemic has created a surge in demand for financial guidance and products in areas like refinance and investing — we’ve seen record visits to our site in these areas this year. Expansion to the U.K. is an important step towards our vision of a world where every consumer makes financial decisions with confidence,” said Tim Chen, co-founder and CEO of Nerdwallet, in a statement. “Consumers are looking for a greater level of help, and with Know Your Money, we want to be there providing the guidance to as many people, across as many topics and in as many places as possible. Know Your Money has done a fantastic job helping consumers find and compare financial products and we’re looking forward to accelerating that work through this partnership.”

MasterCard Asia files patent for Tangle-based device billing system

Given the need to record transactions in a distributed ledger, it is likely that some cryptocurrency-like system will be required, which may limit payment …

MasterCard’s Singapore-based subsidiary filed a patent with the U.S. Patent Office detailing a payment system for using hardware devices that specifically mentions Iota’s (MIOTA) Tangle technology.

The patent claim, published on Aug. 20, proposes a pay-as-you-go system that uses a “transparent data storage system and aggregation.” Users must provide their credentials to gain access to a particular hardware device — the patent cites copiers and 3D printers as examples — and billed strictly for what they used.

The proposed data storage systems could be based on a Tangle or a generic blockchain. The patent makes no mentions of the Iota network or its currency, as the system could also be used in private environments.

The patent claims that such a system would present an improvement over the traditional payment mechanisms commonly used for shared hardware devices. It argues that prepaid cards lock users into the system even if they may not know how much usage they will see, while full pay-per-use “often use attached machines that accept physical currency to operate.” These legacy systems may also limit the payment options available to users, the patent notes.

The stated benefits include a higher degree of transparency and trust in the system, the ability to monitor usage in real-time and the elimination of fees associated with credit cards and other payment systems. The patent nevertheless does not explain how users would pay for usage, merely focusing on the technical implementation of such a system. Given the need to record transactions in a distributed ledger, it is likely that some cryptocurrency-like system will be required, which may limit payment options for users as well.

MasterCard has recently been opening up to cryptocurrencies, launching a dedicated on-boarding initiative for crypto card issuers to use the network in July. In May it also entered into a data privacy project together with enterprise blockchain provider R3.

MasterCard was one of the original members of the Libra consortium, but it left the association in October 2019 citing regulatory and business model concerns.