• Howard Rees and James Jones
  • Published: 27 November 2020

Buy Now Pay Later (BNPL) is a growing part of today’s consumer credit landscape. As part of our extensive research on BNPL, we contacted James Jones, founder of AppToPay, to understand his motivations for entering the BNPL market, the challenges his business has faced, and where he believes BNPL, and the credit industry as a whole, is headed.

So, what is AppToPay?

AppToPay gives consumers an interest-free line of credit that they can use to spread the cost of purchases made at their favourite stores. Users choose a repayment period of between two to twelve months for each purchase they make and repayments are automatically collected by Direct Debit over their chosen period. As repayments are received, credit becomes available again to fund new purchases. AppToPay gives users the spend ease of a credit card with the structured repayment of a loan.

How did AppToPay begin?

AppToPay’s creation was driven by a mixture of professional and personal experience. From a professional perspective, I worked in retail for ten years prior to founding AppToPay and saw first-hand how customers would come into my store, Robinsons of Bawtry, look at high value items over and over, dreaming of owning the item.

They would often have a stable level of disposable income but didn’t have, or couldn’t justify, £1,000 on a handbag as a single outright purchase. £100 a month, on the other hand, would not be a problem.

I introduced traditional retail finance into Robinsons on a single line of products and within 18 months had doubled our annual sales on those specific products to nearly £300,000, upselling existing customers as well as attracting new customers through broadening our catchment and target demographic thanks to this new payment option.

Despite the success, spreading the cost of purchases using traditional retail finance presented some issues; a lack of flexibility, the stigma of filling in lengthy application forms instore, the potential for embarrassment if declined, and a lack of credit-linked re-marketing function to entice the customer back again in the future.

From my personal experience, I would regularly buy higher value items using my credit card, promising myself I would pay it off over a fixed period. The reality was that I would make the first repayment, then find some reason to justify delaying the second, then the third, etc., until my credit card debts had built up to be almost out of control, requiring drastic changes of lifestyle to pay them off. Having seen the need for a cost-splitting payment option, but also felt and seen the negative aspects of credit cards and traditional retail finance, I set out to create a better solution, and AppToPay was born.

From the beginning, I set out a few key principles: Always interest free. Always fixed-term repayments. Applications are done away from store in private. Fast, discreet transactions. Proper credit and affordability checks.

What has been the response from customers?

The response has been great, once customers see the benefit of having a revolving line of credit with every purchase being repaid over a term that suits them, they love it.

AppToPay is designed to facilitate what I call ‘considered purchases’, things like sporting equipment, hobby supplies, designer handbags. It is not an impulse buy, it’s something that’s going to provide value to the user.

What challenges did you face setting up the service?

Dealing with the regulatory side of things was quite a challenge. I had worked in regulated industries before but not financial services, so it was a steep learning curve; but I put myself about in the industry, turning up at offices, attending events and just getting in front of people asking them questions, by doing this I met some really great individuals who have become valuable advisors. We’re a very small team, with very tight funding and we’ve done everything ourselves, our goal is a solid business built upon sustainable lending to people that have been properly assessed.

How has building a lending business been?

We operate under our own Financial Conduct Authority (FCA) authorisations, have developed all our anti-fraud, credit and affordability assessment, payment collection systems, etc., in house.

Using our own store as a test bed for AppToPay has put us in a unique position of being able to see the entire user journey from initial onboarding to repeat purchasing cycles.

From the outset our approach has been to prove the AppToPay concept using our own money before we ask anyone else to risk theirs. To date, we’ve funded all our own lending, performing a thorough credit history and affordability assessment on all applicants. Our current bad debt rate is 0.19% (in comparison to traditional lenders where the rate is around 1 – 2%). This means 99.81% of the money we’ve lent out has been repaid on time, even through the COVID-19 period (as of 06/11/2020).

2020 has been a difficult year as so many retail stores have been shut for prolonged periods due to COVID-19, this caused us to take the difficult decision to delay our roll-out plans until the retail environment stabilizes. We’re going in to 2021 looking to form strategic partnerships with established retailers and lenders as well as investors so that we can kick-start our growth.

What differentiates you from other players in the market?

AppToPay is regulated by the FCA, we perform proper credit and affordability assessments before we issue credit.

We encourage users apply for an account in the privacy and comfort of their own home away from the pressure and purchase impulse of a retail environment; and our transactions are fast and discreet to avoid stigma of cost-splitting at the till.

Our repayment options (two to twelve months) provide enough range for AppToPay to be used for a variety of purchase values. Repayments are collected by Direct Debit, so our users don’t have to worry about forgetting to make a payment – we take care of it all for them.

Purchases are always interest-free, so repayments always pay off the capital of the borrowing. We’re about to release a new set of spending controls to give users even more control of their credit usage, some of which I’ve never seen in the industry before!

Do you think customers are aware of the different protections on credit products?

Purchases made via AppToPay are subject to Section 75 protection, the same as is if it were a credit card purchase. I think consumers will probably not be too concerned about this until such time as they need it, so if they’ve used unregulated BNPL services they could find themselves in a position whereby they don’t have the level of consumer protection that they might have hoped they did have.

What’s next for AppToPay?

We’ve developed AppToPay in such a way that it can be used in two ways, the first is our primary use, allowing users to use the AppToPay app to spread the cost of purchases made in any retailer in our network, we’ll be rolling this out on a retailer-by-retailer basis. The other is to white label the system so that it can be an integrated feature in larger retailers own apps or websites, giving their customers a line of credit that is tied to that particular retailer, allowing them to re-market to those users again and again knowing they have a line of credit they can use in that retailer – perfect for retailers with seasonally changing stock or customer journeys with multiple upsell opportunities.

Where do you see the industry going?

One of the first pieces of advice I was given was that it’s easy to lend money out, the hard part is getting it back, and my fear is that as some BNPL providers compete to try and grab market share, real people will fall victim to a lack of regulation and accountability. When used right, BNPL services can be great payment option for some consumers but when credit is issued to the wrong consumers it can be a dangerous path to go down for both lender and borrower. Transparency, consumer education and corporate responsibility are all going to play a key role in ensuring the integrity of our industry and the safety of consumers.

Contact Capco for more information about BNPL and the implications for banks and financial services firms.