The Economist

58 Finance and economics The EconomistAugust 4th 2018

2 ion points out Miranda Xafa of the Centre

for International Governance Innovation

and may be choking growth. The tax-free

threshold is higher than the median priv-

ate-sector wage meaning revenues de-

pend on a small share of taxpayers. The

marginal rate for Greeks earning €40000

($46500) or above (including social-secu-

rity contributions) is around 70%. Ms Xafa

thinks that evasion may be rising as self-

employed people conceal their income. At

its creditors’ insistence the government

will broaden the tax base in 2020.

Growth is still disappointing. GDProse

by 1.4% in 2017 and is expected to increase

by around 2% this year. The IMFis gloomy

about the economy’s potential partly be-

cause of a rapidly ageing population.

The banking system is still ailing. Just

under half of existing loans are non-per-

forming and banks have little appetite to

offer new credit. They are now better set up

to sell non-performingassets but working

out how much collateral is worth and

which indebted businesses can survive

will take time. Even if banks’ targets are hit

by the end of 2019 bad loans will still ac-

count for over a third of the books.

The biggest barrier to growth though is

that it is still harder to do business in

Greece than in other European countries.

Take the €8bn privatisation of Hellenikon

the site of the old Athens airport. The lease

for the land was put out to tender in 2011

and eventually bought by a consortium of

Greek Chinese and Emirati investors who

intend to turn it into a holiday resort. But

delays arguments over terms and investi-

gations by environmental agencies mean

that the buyer has yet to break ground.

Improvements to the business environ-

ment justice system and public adminis-

tration are all on Mr Tsakalotos’s agenda.

But critics doubt his government’s commit-

ment to reform. Greece rose rapidly up the

World Bank’sDoing Businessrankings un-

til 2015 when a coalition government led

by Syriza a radical left-wing party came to

power. It has rowed back on some of its

predecessors’ reforms such as liberalising

highly regulated professions and curbing

collective wage-bargaining. The IMFfrets

that pay rises might once again become un-

tethered from productivity gains.

Here’s looking at Euclid

With a general election due by October

2019 the government could roll back even

more reforms in order to win the support

of interest groups. Economists suspect that

both financial markets and creditors pay

more attention to the fiscal targets being

pursued by Mr Tsakolotos. That leaves im-

portant and politically difficult reforms by

the wayside.

The road is still uphill. “We have a great

history” Mr Vourvoulakis says in Athens

as he drives through the old town. “But I

don’t know if we have a good future.” 7

A

MERICANS shopping for a mattress on-

line may find the selection at Casper a

New York-based mattress startup some-

what lacking. Unlike brick-and-mortar

shops which offer dozens of models the

startup sells just three. And yet Casper’s

customers are spoiled for choice at the till.

Those who cannot afford to pay with a

debit or credit card or PayPal can pay by

instalments over six to 12 months. Those

who make payments on time can enjoy

the service free.

Such “point-of-sale” loans which have

been around for decades in one form or an-

other are becoming increasingly popular

in America. Consumers who might previ-

ously have financed big-ticket purchases

such as furniture electronics or home-im-

provement projects with a credit card are

now opting to borrow at the checkout of-

ten with an initial 0% interest rate. These

short-term credit products were once the

domain of big banks like Wells Fargo

which finances consumer purchases and

Synchrony Financial an issuer of store-

branded credit cards. Now tech startups

are entering the market with innovative

techniques for underwriting and approv-

ing potential borrowers often in seconds.

Demand is driven in part by younger

consumers. Many young Americans tell

pollsters that they dislike big banks. And

they seem to have been scared off revolv-

ing credit by the financial crisis; according

to the Federal Reserve Bank of St. Louis

those aged 20-35 hold about a third less

credit-card debt than the same age cohort

did in 2001. But they are willing to borrow

over a fixed term for specific purchases

such as a phone or car.

Some traditional banks have piled into

the point-of-sale market. In 2015 Citizens Fi-

nancial Group a regional bank began pro-

viding instalment loans to customers up-

grading their iPhones at Apple stores. Its

portfolio of such merchant-financing loans

grew from $700m to $1.2bn over the past

year. Millennials toting iPhones are not the

only ones borrowing more. In the first

quarter of 2018 personal-loan balances in

America surged by 18% year-on-year to

$120bn according to TransUnion a credit-

scoring firm (see chart). Credit-card debt

meanwhile rose by just 6%.

Some new entrants offer credit mainly

through online merchants. Many target af-

fluent youngsters with simple borrowing

terms and partnerships with high-end

brands. Affirm an online lender based in

San Francisco was founded by Max Lev-

chin who co-founded PayPal. It has agree-

ments with 1500 online retailers includ-

ing Nest which sells smart thermostats

and Peloton which sells internet-connect-

ed exercise bikes.

Affirm’s loans which typically range

from $500 to $5000 tend to carry higher

interest rates than traditional credit cards.

But the firm says borrowers end up paying

less because they are not subject to hidden

fees or compound interest and have a set

pay-off date. Its figures suggest that mer-

chants using the service see revenue in-

crease by 7-12% thanks to shopping baskets

that are bigger and less likely to be aban-

doned before checkout is complete.

Other lenders partner with brick-and-

mortar sellers. GreenSky an Atlanta-based

lender founded in 2006 arranges financ-

ing for home improvements elective med-

ical procedures and other pricey items.

Rather than lend the money it matches

merchants like Home Depot with banks

like SunTrust and Regions Financial to fi-

nance their loans. Loans are arranged face-

to-face by the retailer or contractor making

the sale cutting the risk of fraud. GreenSky

which makes money by charging fees to

both merchants and banks earned $326m

in revenue and $139m in net income in 2017.

It went public in May and is now valued at

$3.5bn making it America’s fourth most

valuable fintech company.

Investor enthusiasm for online lenders

can be fickle however. LendingClub and

OnDeck Capital two lenders that went

public in 2014 promising to shake up the

banking industry have struggled with high

sales-and-marketing costs and difficulty

finding cheap and stable funding for loans.

Since its initial public offering Lending-

Club’s share price has fallen by 82%; On-

Deck’s has dropped 76%. Neither company

turned a profit in 2017. GreenSky which

bills itself as a technology company rather

than a lender hopes to fare better by part-

nering with traditional banks rather than

trying to beat them at their own game. That

may not be as striking as the strategy of

other fintech startups. But it has the advan-

tage that it is already profitable. 7

Consumer lending

Buy now pay later

A crop of tech startups are reviving an

old financial product

Higher purchase

Source: TransUnion

United States unsecured personal-loan

balances outstanding first quarters $bn

0

20

40

60

80

100

120

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