The Afterpay spokesperson said the company is entering 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 that the last use of the buy now, pay later program could lead to a “debt spiral” for the people.
The Australian Venue Co hotel group has partnered with Afterpay to launch its “Dine Now, Pay Later” offer.
Its CEO, Paul Waterson, said the move was driven by customer demand and a desire to deliver cutting-edge technology solutions that provide a more convenient experience for customers.
He added that customers have turned away from credit cards.
“We are not afraid to come first. As a group, we are looking for other industry leaders that we can work with to innovate on behalf of our clients,” he said.
“We look forward to our customers being able to choose an alternative and innovative way to pay for dinner in our pubs.”
But Katherine Temple, director of policy and campaigns at the Consumer Action Law Center, said the move was concerning as the group sees more and more people struggling with debt to buy now, to pay later (BNPL ).
“Often times, buying now and paying later is part of a larger debt problem, so people also struggle with existing credit card debt, personal loans, or utility loans. C so is rarely the only type of debt when it comes to us, ”she told news.com .au.
“Debt varies, but it can range from a few thousand dollars to tens or hundreds of thousands of dollars in debt and we are hearing from people of all ages and walks of life using these products now.”
Lack of regulation
Temple said BNPL’s services exist in a “regulatory vacuum” because they are not subject to the same rules that offer protections to consumers for other financial products such as personal loans, mortgages, credit cards and more. even payday loans.
“My general concern about buying now and paying later is the lack of affordability controls. There really aren’t enough safeguards in place to ensure people can afford refunds and we let’s see that this exacerbates the financial difficulties and the money problems, ”she explained.
“Buying now, paying later is everywhere now and is normalizing debt especially for younger people. I am worried about the financial implications especially for young people… Using what is essentially credit for daily expenses can result in a spiral of debt and that’s a real worry. “
A spokesperson for Afterpay said the company is entering new segments based on demand, adding that more than 70% of customers said they wanted a more flexible payment method at hospitality locations in across Australia.
“As credit cards decline sharply, Australians are looking for smarter ways to manage their budgets, using their own money and avoiding the pitfalls of interest and debt,” they said.
Responsible spending rules are built into Afterpay’s product, which ensures customers never pay interest or go into debt, the spokesperson said.
“Customers cannot continue to use Afterpay if they are late on a single payment,” they noted.
Unlike credit cards, Afterpay cannot be used for any type of gambling service and is limited to meals and hospitality, they added.
But Temple said young people could be in trouble if they relied on BNPL’s services.
“Buy now, pay later, suppliers are normalizing the debt of very young Australians who are in the early stages of their financial independence and the decisions we make when we are young can have very long term implications for our future money,” he said. she declared.
“I think in general people should be aware that this product is not free, especially if you cannot pay on time and it can easily become a problem.”
Infiltrate into new areas
The hospitality industry isn’t the only area that buys now, suppliers pay later.
Last month, Zip Co announced that it was teaming up with the owner of 10,500 daycare centers in Australia and New Zealand, called Xplor Education, to offer the service with the option available from early November.
Xplor Education CEO Mark Woodland told The Australian that the company wants to make childcare more affordable and free childcare staff from tuition fees.
“What we’ve added through the Zip partnership is the ability for parents to split childcare costs, which can be incredibly expensive,” said Woodland.
“Parents usually have to choose between taking an extra shift and whether or not their child can be placed, and they just can’t afford to fund it.”
Zip’s commercial director Colin Baines said new customers will go through credit checks and pay the money monthly, rather than four installments.
Also in the signs to come, a fintech startup called Edstart, backed by the National Australia Bank venture capital fund, is also raising money for a platform to help pay for private tuition fees through a system. buy it now, pay later.
But Temple said BNPL providers urgently need to be subject to the same responsible lending laws.
“They need to make sure that proper affordability checks are carried out before handing out large sums of money,” she said.
“Some of these vendors who buy now and pay later can pay up to A $ 30,000 without properly verifying that you can afford refunds, which can obviously lead to financial disaster for some people. . “
Millions of fees
The Reserve Bank found that Australia’s two largest providers of BNPL had 6.1 million active users.
Afterpay generated A $ 70 million in late fees in 2020, while Credit Suisse estimated the company would earn around A $ 107 million this year from the fees.
In FY 2018-19, missed payment fee revenue for all buy-now and on-payment providers totaled over AU $ 43 million, according to a report by the Australian Securities Commission and of investments (Asic) published last year.
The business regulator has criticized buy now, later pay providers like Afterpay, Zip and Humm for charging excessive late fees or other fees.
He found that one in five users buy now, pay later, payments miss, with the younger generation particularly affected as half of users aged 18 to 29 cut back on essential items to make refunds.
Its report also found that more than 1.1 million transactions in 2019 resulted in multiple missed payment charges and warned that 15% of users, half of whom were under 29, had taken an additional loan to pay off the charges. services.