You can also listen to the interview in the audio version.
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After last year’s rocket growth, Czech e-shops have failed this year. One of the reasons could be that Czechs are used to paying for online purchases mostly after they add the goods to the virtual cart.
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“If you look at foreign markets, there are much more developed so-called deferred payments,” said Richard Kotrlík, Mallpay’s chief of technology, on the Agenda SZ Business program. “When you combine the need to pay ahead and the worse economic situation, which may affect the Czechia more than some Western countries, the result is a greater decline in e-commerce,” he said.
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The turnover of domestic e-shops in the first quarter of this year fell by a quarter year-on-year. But it is still at pre-pandemic levels. What is behind the decline?
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I will also explain this in the context of other European markets, because they are also facing a drop in turnover. But the year-on-year decline is only about half that of the Czech Republic. This is certainly due to the overall economic situation, which is affected by record inflation. And then, of course, the conflict in Ukraine.
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If you look at the comparison with Western European countries, inflation in the euro area was about half that in the Czech Republic. So this effect will be smaller there. The second effect will be the conflict in Ukraine. Not that it doesn’t touch some western countries, but it’s a bit far-fetched and can cool demand less.
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There is another factor. In some areas of e-commerce, the Czech Republic really excels and can be set as a model for Western countries.
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In logistics, especially at the last mile, when goods are delivered to the customer’s home or delivery point. We are really at the top there. In larger cities, larger e-shops are able to deliver goods within an hour.
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At the same time, however, there are areas where the Czechia is lagging behind other European markets. And these are mainly payment methods. Today, when customers order something online, 98 percent choose a payment method that forces them to pay for the goods in advance. Before they even know if the goods are in stock, when the e-shop will deliver them, if it will be okay, if what they actually ordered will come.
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If you look at foreign markets, there are much more developed so-called deferred payments.
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You are their representative.
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It is so. In English, they are called Buy now, pay later (BNPL). For example, in Sweden, where the global BNPL giant Klarna comes from, which has over 150 million customers worldwide, every third online purchase is paid for by deferred payment. Even in conservative Belgium, it is already about ten percent.
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It is not used so much in the Czech Republic yet. When you combine the need to pay ahead and the worse economic situation, which may affect the Czechia more than some Western countries, the result is a greater decline in e-commerce.
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Richard Kotrlík
- Since 2014, he has worked at ČSOB as the head of the consumer credit department.
- In 2019, after the entry of ČSOB, he became the second manager in Mallpay, where he worked as the financial director.
- In June 2022, he moved into the management of the company.
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In which segments is the decline the largest?
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Of the product categories, electro, especially more expensive items, suffer the most.
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These include, for example, more expensive fashion. These are the two categories in which we see the largest decline in our payment method, and this is confirmed by market information.
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In my opinion, it is more interesting to look at it through the approach and philosophy of e-shops. We can show this on the example of those years when Czech e-commerce recorded record growth, ie years influenced by covid.
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According to the approach, e-shops could be divided into three categories. The first were e-shops, which took on a wave of increased demand. Then, when the wave caused by the covid wears off, so does their turn. The second type of e-shops knew that this wave of demand would need to respond. These companies have worked hard on their processes, streamlining logistics. They are thus much better prepared for the growth of turnover in the future.
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The third type of e-shops applied the most advanced approach, which will best prepare them for the future – they managed the emphasis on streamlining processes, but at the same time they did not lose their focus on development in other areas. They have worked, for example, to introduce new payment methods that will help them grow even when the market is falling.
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So you’re suggesting that you and deferred payments should start to do better in this situation than before. It is so? Do you see it on the numbers?
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It is so. When we look at our simplest product, we grow by a tenth year on year. If we looked at the overall transaction volumes that flowed through our payment method, we have already surpassed the figures for the whole of 2021 in May.
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Nevertheless, 98 percent of customers pay directly at the time of purchase. So you and your competition have a 2% market share, so the potential is there. But abroad, people are beginning to talk about whether deferred payments are not a bubble and whether it is not the indebtedness of those who would not otherwise be able to afford those purchases.
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The bubble is mainly talked about because the biggest global players, such as Klarna, Affirm and Zip (an Australian fintech who bought the Czech leader in deferred payments Twisto last year, ed. Note), are now facing worse results on the credit side. risks. In other words, they have grown shares of deferred payment receivables that customers are unable to pay or do not pay on time.
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Nevertheless, I think that this fluctuation will be of a short-term nature and will generally not jeopardize the global growth of this service in the coming years. Not even his start in the Czech Republic. I say start intentionally due to the low share compared to other countries.
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Mallpay
- Fintech, which focuses on deferred and enriched payments (in addition to deferred payment, also a free guarantee or insurance, the ability to invest or repay larger purchases).
- It was originally established as part of the MALL Group and ČSOB Bank. It acquired a 100% stake in April 2022 and now wants to use it as its experimental technological space.
- From the beginning of May 2022, Mallpay surpassed last year’s transactions and volumes. In 2021, 255,000 payments for more than 300 million crowns went through it.
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I will explain why I think this problem is short-lived. It can occur for three reasons. The first is that you set the sieve to filter suitable users for deferred payment too roughly in the pursuit of large transaction volumes, and you leave customers there who are unable to repay it in the future.
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The second thing is the general setup of the business model. Different players have different shares of revenue from different sources. Somewhere it’s set up so that you benefit when some customers don’t pay you on time. You collect relatively high fees for late payment, penalty interest, etc.
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The third cause that can lead to these problems is the product structure. Simpler products are not fully regulated and customers do not have to be so scrutinized. If you build more of them on production, you are more prone to short-term fluctuations.
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Is the number of customers who will not pay in the end growing?
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We are stable somewhere below two percent, it is not growing.
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You mentioned the Swedish company Klarna, which will probably start competing with you and your competitor Twisto in a few weeks. What will it do to the market?
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It will be a positive impulse again. We love the competition and we are looking forward to Klarna’s entry into the Czech market.
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Competition tends to move the market both technologically and innovatively. It benefits customers who receive better service at a lower price.
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What is the potential of deferred payment on the Czech market?
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Become every third payment online.
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You can start the whole interview at the beginning of the article.
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Agenda
A quarter of a first-hand business. Interviews with top leaders in Czech business, company founders, experts.
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Every weekday at SZ Business and in all podcast applications.
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