Macy’s is the latest marquee retail name to chase the pay-later craze.
On Tuesday, Macy’s, Inc. revealed an investment in Swedish fintech Klarna that will give customers of the nation’s largest department store company the option to spread out their purchase costs over four equal installments. The news comes on the heels of Klarna’s $650 million raise, valuing the payments firm at north of $10 billion.
Under the terms of the deal, Klarna’s interest-free “buy now, pay later” option is available at checkout on the Macy’s website for up to five years, a move that the retailer’s chief digital officer Matt Baer says offers customers “the best possible shopping experience.”
“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 that provide them with financial control and convenience,” he added. A Macy’s spokesperson on Tuesday declined to disclose the “financial details of our partnerships.”
The decision to integrate a so-called “modern layaway” plan might be aimed at millennials, a demographic notorious for eschewing credit—and its escalating fees and costs—in favor of debit. A TD Bank surveyed published last month found that millennials in particular seem to be struggling more than their Gen X and baby boomer counterparts during the coronavirus pandemic. They’re more likely to report shrinking checking accounts, and 54 percent of those who say they’re not saving any money are millennials, according to the poll of 1,000 U.S. consumers. And while 28 percent of millennials have been forced to dip into their savings account to navigate through economic turbulence, the survey says 20 percent don’t have a rainy-day fund at all.
The survey findings underscore Macy’s interest in giving consumers more options for how to shop and budget their finances, especially with the holiday season officially—or unofficially—kicking off on the newly created 10.10 shopping festival launching this weekend. No one has a playbook for how holiday might unfold during a pandemic that has cast tens of millions into the unemployment line. Offering a wallet-friendly installments feature could entice shoppers to give their dollars to Macy’s versus competitors that fail to address Covid’s penny-pinching reality.
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As for Klarna, Macy’s marks the latest in a long line of high-profile partnerships sealed this year. H&M and Footlocker linked with the fintech earlier this year, joining companies like Adidas, Tommy Hilfiger, Express and Dr. Martens in offering flexibility at checkout.
“Macy’s is the shopping destination for American consumers, synonymous with quality, style, and celebration,” said Sebastian Siemiatkowski, CEO of Klarna, which says it has 200,000 global retail partners, 9 million U.S. shoppers and 12 million monthly active users on its global shopping app. “Klarna is delighted to partner with Macy’s as the shift to online retail accelerates and the company continues to innovate and enhance its digital offerings to meet evolving consumer expectations, for which smart and flexible payments are essential. This strategic collaboration is firmly rooted in a shared obsession with offering a superior innovative shopping experience that builds lasting connections with consumers.”
Competition in the pay-later market is cutthroat. PayPal rolled out its own installments rival in August, while Aussie innovator Afterpay has landed more than 5 million customers in the U.S. and brought its pay-in-four solution to Apple Pay and Google Pay. With shoppers migrating their dollars online amid coronavirus store closures, retailers have seen the value in giving consumers new ways to mindfully spend online.
In inking the Klarna deal, Macy’s joins others such as BlackRock as investors. Additional investors in Klarna include private equity firms such as Sequoia, Silver Lake and Singapore’s wealth fund, GIC, Reuters reported. Klarna said it processes one million transactions each day, with its share of the Northern Europe e-commerce market reaching 10 percent.
Meanwhile, Afterpay is looking to boost its profile during the busy holiday shopping season, teaming with the nation’s biggest shopping mall operator to market its pay-later platform.
“Afterpay’s unique in-store payment solution allows our shoppers to make immediate purchases from our retail tenants, while paying over time, interest free—driving additional sales for our retailers,” said Mikael Thygesen, chief marketing officer for Simon, which operates dozens of malls across the country. “We believe the service is well-suited for these challenging economic times and a great option for our consumers and retail tenants alike.”
Australian startup Afterpay has amassed a base of more than 5 million shoppers in the U.S. since launching in the market two years ago. More than 15,000 retailers worldwide offer the pay-later platform, which is available to use in stores and digitally through the Afterpay and website.
“With the busy holiday season upon us, we are proud to offer a truly multi-channel payment solution that has proven to bring new customers and increased sales to our retail partners,” said Melissa Davis, the executive vice president for the North America business at Afterpay, which saw 1 million new customers join between March 1-May 22. “Our new in-store solution is yet another way to support merchants by offering a powerful budgeting tool that allows shoppers to spend their own money over time—whether they prefer to buy in a physical store or online.”