Afterpay spokesperson said the company enters new segments based on demand. Photo / 123RF
Afterpay spokesperson said the company enters new segments based on demand. Photo / 123RF
Afterpay will be available in 160 pubs across Australia by the end of the week but consumer advocates have warned the latest use of the buy now, pay later scheme could lead to a "debt spiral" for people.
Hospitality group Australian Venue Co has partnered with Afterpay to launch its "Dine Now, Pay Later" offering.
Its CEO Paul Waterson said that the move was driven by customer demand and a desire to offer forward-thinking tech solutions that delivered a more convenient experience for guests.
He added there was a shift by customers away from credit cards.
"We're not afraid to go first. As a group, we seek out other industry leaders who we can work with to innovate on behalf of our customers," he said.
"We are looking forward to our guests being able to choose an alternative, innovative way to pay for dining out at our pubs."
But Katherine Temple, the director of policy and campaigns at the Consumer Action Law Centre, said the move was concerning as the group sees more people struggling with buy now, pay later (BNPL) debts.
"Often buy now pay later is part of a larger debt problem so people are also struggling with existing credit card debts or personal loans or utility loans, so it's rarely the only type of debt when they come to us," she told news.com.au.
"The debt varies but it can be a couple of thousand dollars up to tens or hundreds of thousands of dollars of debt and we are hearing from people of all ages and walks of life that are using these products now."
Afterpay will be available in 160 pubs across Australia by the end of the week. Photo / 123RF
Lack of regulation
Temple said BNPL services exist in a "regulatory void" as they are not subject to the same rules that provide consumer protections for other financial products such as personal loans, mortgages, credit cards and even payday loans.
"My overall concern with buy now pay later is the lack of affordability checks. There really aren't enough safeguards in place to ensure people can afford to make repayments and we see it exacerbating financial hardship and money problems," she explained.
"Buy now, pay later is everywhere now and is normalising debt particularly for younger people. I worry about the financial implications particularly for young people … The use of what is essentially credit on everyday expenses can lead to debt spiral and that's a real worry."
An Afterpay spokesperson said the company enters new segments based on demand, adding over 70 per cent of customers said they wanted a more flexible way to pay at hospitality venues across Australia.
"As credit cards steeply decline, Australians are looking for smarter ways to manage their budget, using their own money, and avoiding interest and debt traps," they said.
Responsible spending rules are built into Afterpay's product, which ensure that customers never pay interest or revolve in debt, the spokesperson said.
"Customers are unable to continue using Afterpay if they are late on a single instalment," they noted.
Unlike credit cards, Afterpay cannot be used for any type of gambling service and is limited to dining and hospitality, they added.
But Temple said young people could end up in trouble if they rely on BNPL services.
"Buy now pay later providers are normalising debt for really young Australians who are at the beginning of their financial independence and the decisions we make when young can have really long term implications for our future money," she said.
"I think generally people need to be aware that this product is not free, particularly if you can't pay on time and it can easily build up into a problem."
Afterpay made A$70 million in late fees in 2020. Photo / 123RF
Creeping into new areas
Hospitality isn't the only area that buy now, pay later providers are entering.
Last month, Zip Co announced it was teaming up with the owner of 10,500 childcare centres in Australia and New Zealand called Xplor Education to offer the service with the option available from early November.
CEO of Xplor Education Mark Woodland told The Australian the company wanted to make childcare more affordable and free up childcare staff from chasing fees.
"What we've added through the Zip partnership is the ability for parents to spread the cost of childcare, which can be incredibly expensive," Woodland said.
"Parents usually have to choose between picking up an extra shift and having to choose if their child can go into care or not, and they just don't have the means to fund it."
Zip director commercial, Colin Baines, said new customers would be subject to credit checks and would pay off the money monthly, rather than in four instalments.
In signs to come too, a fintech start-up called Edstart, backed by National Australia Bank's venture capital fund, is also raising money for a platform to help pay for private school fees via a buy now, pay later-style system.
But Temple said BNPL providers need to be subject to the same responsible lending laws urgently.
"They need to ensure proper affordability checks are done before they hand out big sums of money," she said.
"Some of these buy now pay later providers can pay up to A$30,000 without them properly checking you can afford to make repayments and that can obviously lead to financial disaster for some people."
The Reserve Bank found that the two largest Australian BNPL providers had 6.1 million active users.
Afterpay made A$70 million in late fees in 2020, while Credit Suisse has estimated the company will earn about A$107 million this year from the charges.
In the 2018-19 financial year, missed payment fee revenue for all buy now, pay later providers totalled over A$43 million, a report from the Australian Securities and Investments Commission (Asic) released last year found.
The corporate regulator has criticised buy now, pay later providers such as Afterpay, Zip and Humm for charging excessive late or other fees.
It found one in five buy now, pay later users are missing payments, with the younger generation particularly impacted as half of users aged between 18 to 29 cut back on essential items to make repayments.
It's report also revealed more than 1.1 million transactions in 2019 incurred multiple missed payment fees and warned that 15 per cent of users, and half of which were under 29, had taken out an additional loan to pay for the services.
