Afterpay believes a fear of credit card debt by millennials will drive its global growth

L-R: Matt Kean MP, NSW Minister for Innovation and Better Regulation, Gabrielle Wakeman and Nick Molnar from Afterpay (winner of FinTech Organisation of the Year), and Karen Borg, CEO of Jobs for NSW. Photo: Supplied
  • Afterpay is tipping fear of debt among millennials as key for its US expansion.
  • Experts say credit card usage is falling for millennials.
  • Millennials in the US do not appear to be as averse to debt as Australians.

Afterpay is tipping that a fear of debt by millennials is going to be key to the company’s success in the US.

Afterpay co-founder Nick Molnar told the Altfin conference in Sydney that the company’s expansion into the US would be buoyed on by a “more pronounced” aversion to debt than is held by Australians, the Sydney Morning Herald reported.

“You hear anecdotes that the US is a credit-driven society, and it’s kind of like ‘OK, we’re the opposite of that, are we going to get the same uptake?’” he said. “And actually, we’ve found that millennials have been even more pronounced in their aversion to traditional credit products, largely because of student debt, and it’s just a different landscape.”

But new findings from the New York Federal Reserve show that American millennials have increased debt by 22 per cent in just five years to a total of more than USD$1 trillion.

According to a 2018 report from the St. Louis Federal Reserve Bank, mortgage debt is about 15% lower for millennials, while credit card debt among millennials was about two-thirds that of Gen X.

Compare this to Australia, where credit card debt fell 4.2 per cent in 2018 and a report from Afterpay itself showed credit card debt as as share of debt was lowest for millennials at only 10 per cent.

But Commsec senior economist Ryan Felsman told Business Insider Australia that across the board consumers in Australia were focused on paying down debts.

“We’re seeing risk aversion play out with a cautious consumer, we are seeing that translate into risk aversion around credit card debt,” he said. “Millennials are quite risk averse when taking on credit card debt, we see them use debit cards frequently but there’s also a move towards buy-now-pay-later platforms.”

Canstar’s financial expert, Steve Mickenbecker, told Business Insider Australia that he expected the same sorts of people who get into trouble with credit card debt would also likely get into trouble with debts on buy-now-pay-later platforms.

“If you don’t meet your repayments they cease to be good products,” he said.

At the conference, Molnar pointed to a 30 per cent reduction in its bad debt expense to 1.2 per cent of its book at its latest results. The company spent $2.3 million in 2018 trying to recover bad debts.

Speaking at the conference Molnar pointed to the impact of the global financial crisis on attitudes to debt, saying he thought this phenomenon had occurred around the world.

“In Australia there are twice as many debit card transactions now than there are credit card transactions. In the US, two out of three people aged 18 to 30 actually don’t own a credit card anymore,” he said.

Ryan Felsman said recent surveys from Westpac had shown people thought the safest thing to do with their money was to pay down debts.

“That suggests that Australian households are more focused on deleveraging,” he said. “We’ve seen GenX and baby boomers take on huge debt loads but the younger generation are less enthused about having large mortgages and debts.”

Afterpay is making a big push for the American market, alongside its expansion into the UK, announced in August last year.

At the conference, Molnar said they expected to have 1 million US customers by March this year.

The AFR reports that Afterpay suffered a larger-than-expected net loss of $22 million for the six months to December 31 2018 as it chased new hires in Silicon Valley. At the time the company said it would spend at least another $10 million in 2019 to chase the US and UK opportunities, including new co-marketing with retailers.

Canstar’s financial expert, Steve Mickenbecker, cautioned that America had been the graveyard of many Australian companies trying to expand overseas.

“Australian companies go over there thinking they’re doing this well over here, what about if we attack this market with the same model and they have misunderstood the US,” he said.

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