I remember as a teenager buying on lay-by. Jet stores had a red and orange jersey that I had fallen in love with. I didn’t have the money to buy it, and in those days store cards were uncommon ‒ and certainly not available to a teenager. I bought the jersey on lay-by and paid it off over three months.
The lay-by system allows you to commit to an interest-free payment plan, and you only take possession of the item when it is fully paid for.
The system has largely fallen away, replaced by easy ‒ yet expensive ‒ credit in the form of store cards and credit cards. The fees and interest incurred on these credit facilities has been a boost to the profits of retailers and banks, but has effectively increased the cost to the consumer, who pays substantially more in order to have the item today rather than in a few months’ time.
Listen to Maya and Mapalo Makhu discussing this topic in the My Money, My Lifestyle podcast.
Credit and store cards allow us to purchase multiple products during the month and we lose track of what it is we are paying for. We start to simply live in constant debt, paying an installment each month without ever realizing the true cost.
Yet, as people understand the consequences of taking on debt, with many overindebted and unable to access credit lines, there has been an increase in the demand for lay-by. While a large retailer like Pep stores can implement a lay-by system, due to the admin hassle, it is not an option for most smaller retailers.
Last year we wrote about Nedbank’s intention to enter the lay-by market by providing technology to retailers through its partnership with SwitchPay, but this appears to have been put on hold until next year due to the COVID-19 crisis.
In the meantime, another new player, LayUp, has entered the market and is already providing services to 30 merchants in the retail and telecom & medical sectors.
100% interest-free offering
Their technology has been used in the travel sector, allowing customers to book their holidays in advance and then pay it off over several months, without any interest costs.
It is a 100% interest-free offering to the end consumer, and there are no penalties or late fees charged. There are no credit checks done, and both foreigners and under 18s can use LayUp to buy the items they want.
LayUp is designed to be a goal-based saving platform that lets you systematically save for the items you want. If you decide to cancel, you can do so and get any money back that you’ve already paid.
LayUp founder Andrew Katzwinkel says that while larger retailers like Truworths, Foshini, Pep and Ackermans do offer lay-by options, these are still very cumbersome contracts. For each purchase, a customer has to enter a new contract and must come into the store to make payments, adding costs such as transport and time.
In comparison a customer can swipe their store card at the point of sale and then make the monthly payments online – which once again makes credit the easier option.
Katzwinkel believes that technology that allows lay-by to be as easy to use as a store card will make it a more attractive option.
LayUp’s technology is run through the point-of sale, rather than as a separate account to be opened with the store. It is fully integrated into the banking system, allowing customers to pay online as an EFT or card payment.
Customers can even access their LayUp account via the LayUp website to make payments and monitor the payment plan. There are also features that let you split your payment for group purchases.
There are no interest charges and all costs are absorbed by the merchant, who gains the advantage of making a sale to a customer who might otherwise have been lost to them.
Build a credit history without taking on debt
“Some people just don’t want credit or they don’t qualify,” says Katzwinkel who points out that there are millions of consumers who do not have enough data or who do not score enough to qualify for credit.
By integrating with the credit bureaus, LayUp becomes a way for a consumer to build up a credit history without taking credit. “The payment behaviour shows that the consumer is a good payer and can one day qualify for lending products at much better terms,” explains Katzwinkel.
Lay-by purchases are also protected under the Consumer Protection Act. If you cannot make the payments, you are entitled to a full refund of the money you have paid with a maximum 1% cancellation fee. So, there is no large deposit that you lose if you cannot repay.
Katzwinkel says in light of COVID-19, they have built in a “snooze” feature which allows the consumer to pause the payments and then resume when they can afford to.
As credit tightens further and more consumers understand the true cost of debt, technology driven lay-by offers a far more cost-effective and consumer-friendly option.
This article first appeared in City Press.